Pre Exam CICC Day 12

At the most basic level, how should you proceed if you are not totally comfortable with management’s willingness to pay debts?

• Seek additional security in the form of cash deposits

• Strengthen the credit through the addition of a guarantor

• Seek additional security with a collateral mortgage

• Decline to enter into a credit relationship with the business

For the purpose of assessing management risk, what could potentially provide the least valuable view of the management’s integrity?

• Reviewing the loan term of prior loan

• Reviewing willingness to work with the lender when cash flow problems occur

• Reviewing prior compliance with covenants

• Reviewing conduct of other accounts

What would not be indicated in the account status section of a personal credit report?

• If loan is current

• Type of credit facility

• Past delinquency

• Any repossessions

In what way does reliance on audited financial statements affect the determination of management integrity risk?

• It eliminates integrity risk, regardless of the auditor

• It requires the lender to more closely scrutinize financial information

• It mitigates management integrity risk because auditors verify whether financial records are in accordance with accepted accounting standards

• It masks integrity issues under the guise of a trusted third-party opinion

When reviewing a credit agency report, a lender would be most comfortable extending credit to a borrower who has a concentration of trade payments made in which period relative to payment terms?

• 90+ days

• 0-30 days

• 61-90 days

• 31-60 days

What is the primary purpose of reviewing internal bank records and references made directly with other banks?

• Determine loan payment history

• Determine loan utilisation history

• Determine cash balance history

• Determine cash deposit history

Which statement about the use of credit references or reports on a business’s principals and personal guarantors is correct?

• If they reflect late payments, they almost always point to management integrity problems

• If they do not contain negative information, they indicate that management integrity is sound

• They are unhelpful in assessing integrity because borrower management provides the information in the responses.

• They may provide information that helps in the evaluation of management integrity

For which business would it be easiest to identify integrity issues?

• A company that borrows from another financial institution and that has covenants with that bank

• A company that borrows from your financial institution and that has no covenants with your bank

• A company that borrows from your financial institution and that has covenants with your bank

• A company that borrows from another financial institution and that has no covenants with that bank

Which statement about a business owner’s personal payment history is correct?

• If it does not reflect any payment defaults, then management integrity is sound

• If it is irrelevant when attempting to determine integrity risk of the business

• It may often be a better indicator of integrity than the payment record of the business

• It is not a good indicator of integrity

What is meant by the term “amount owing” on a credit agency report?

• The normal terms of sale extended by the supplier

• The greatest amount of credit extended

• The date or amount of time since the latest sale was made

• The debt due by a business at the time of the survey and the status of that amount (current, amount past due)