Certification of Management Accountant
New System Part ONE Essays
Each essay question actually consists of several related questions based on one scenario. The question as a whole is worth a set number of points and is graded against a scorecard to ensure consistent grading. The scorecard lists appropriate terms, topics, and ideas that address the answer. Presented here are two essay questions drawn from previous exams. The first essay question is followed by an example of an answer that would be awarded maximum points - a "best" answer. How these points are awarded is shown on a scorecard similar to ones used by the Institute of Certified Management Accountants (ICMA).
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Essay Practice Questions
Question 1 (CMA Part 1) Brawn Technology Inc. is a manufacturer of large wind energy systems. The company has its corporate headquarters in Buenos Aires and a central manufacturing facility about 200 miles away. Since the manufacturing facility is so remote, it does not receive the attention or the support from the staff that the other units do. The president of Brawn is concerned about whether proper permits have been issued for new construction work being done to handle industrial waste at the facility. In addition, he wants to be sure that all occupational safety laws and environmental issues are being properly addressed. He has asked the company’s internal auditor to conduct an audit focusing on these areas of concern.
REQUIRED: A. Identify and describe the two fundamental types of internal audits. Using examples, describe two situations where each type of audit would be applicable. Referring to Brawn Technology, identify 1. the type of audit that would best address the concerns of the president. 2. the objective of this audit. 3. two reasons why this type of audit would best address the concerns of the president. C. Recommend two procedures that could be implemented at Brawn’s manufacturing plant that would lessen the president’s concerns. Explain each of your recommendations.
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Answers to Practice Questions
Question 1 - Brawn Technology, Inc. A. The two fundamental types of internal audits are operational audits and compliance audits. An operational audit is a comprehensive review of the varied functions within an enterprise to appraise the efficiency and economy of operations and the effectiveness with which those functions achieve their objective. An example would be an audit to assess productivity. Other examples could include an evaluation of processes to reduce rework, or reduce the time required to process paperwork or goods. A compliance audit is the review of both financial and operating controls to see how they conform to established laws, standards, regulations, and procedures. An environmental audit would be an example of a compliance audit. Other examples of compliance audits could include the review of controls over industrial wastes or the review of procedures ensuring that proper disclosure is made regarding hazardous materials on site. B. 1. A compliance audit would best fit the requirements of the president of Brawn. 2. The objective of this compliance audit is to assure the president that the manufacturing facility has appropriate policies and procedures in place for obtaining the needed permits, has obtained all the required permits in accordance with the law, and that environmental and safety issues are being properly addressed. 3. The assignment specifically is to address the proper use of permits, compliance with safety regulations, and compliance with environmental standards. These issues can only be properly addressed by conducting a compliance audit. Although financial and operational areas might be involved, they would be secondary to the compliance issues. For example, a financial impact could result from the...