ACCA Risk Management and Internal Controls 1

Question 1

Which of the following best describes 'inherent risk' in an organizational context?

Accepted Answer

The raw or untreated risk before any controls

Answer

Inherent risk is the level of risk in the absence of any actions management might take to alter either the risk's likelihood or impact.

Question 2

In enterprise risk management (ERM), what is a 'risk appetite'?

Accepted Answer

The amount of risk an organization is willing to accept in pursuit of its objectives

Answer

Risk appetite is the broad-based amount of risk an organization is prepared to accept in pursuit of value, acting as a guide for risk-taking decisions.

Question 3

Which framework is most widely referenced for internal control and risk management, comprising five components including the control environment and monitoring?

Accepted Answer

COSO ERM Framework

Answer

The COSO Internal Control – Integrated Framework (and its ERM extension) is the most widely used framework, featuring five components: control environment, risk assessment, control activities, information & communication, and monitoring.

Question 4

Which of the following is an example of a detective control?

Accepted Answer

Bank reconciliation reviews

Answer

Bank reconciliations are detective controls because they identify errors or discrepancies after a transaction has already occurred.

Question 5

A company's board is considering using derivatives to hedge foreign currency exposure. This risk response is best classified as:

Accepted Answer

Risk transfer

Answer

Using derivatives to hedge transfers the financial risk of adverse currency movements to the counterparty (e.g., bank), making it a risk transfer strategy.

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA Risk Management and Internal Controls 1