ACCA Risk Management and Internal Controls 2

Question 1

Which of the following is a key purpose of a company's Audit Committee?

Accepted Answer

To provide independent oversight of financial reporting, internal controls, and external audit

Answer

The Audit Committee provides independent oversight of financial reporting integrity, internal control systems, risk management, and the relationship with internal and external auditors.

Question 2

What is 'residual risk'?

Accepted Answer

The risk remaining after controls and mitigating actions have been implemented

Answer

Residual risk is the level of risk that remains after management has applied controls and other risk responses.

Question 3

Which of the following financial risks refers to the possibility that a counterparty will fail to fulfill its contractual obligations?

Accepted Answer

Credit risk

Answer

Credit risk (also called counterparty or default risk) is the risk that a borrower or counterparty will not meet its obligations in accordance with agreed terms.

Question 4

In the context of business risk, 'reputational risk' is best described as:

Accepted Answer

The risk that negative publicity will damage an organization's standing with stakeholders

Answer

Reputational risk is the potential for negative stakeholder perceptions — from customers, investors, or regulators — to adversely affect business relationships and financial performance.

Question 5

A company purchases an insurance policy to cover potential losses from a warehouse fire. This is an example of:

Accepted Answer

Risk transfer

Answer

Insurance transfers the financial consequence of a specified risk to the insurer in exchange for a premium, making it a classic risk transfer mechanism.

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA Risk Management and Internal Controls 2