CBA Risk Management Auditing 2

Question 1

When auditing a bank's credit concentration risk, which metric is most critical to evaluate?

Accepted Answer

Single borrower exposures as a percentage of Tier 1 capital

Answer

Net interest margin by loan type

Answer

Total non-interest income from lending fees

Answer

Loan-to-deposit ratio across all branches

Question 2

A bank's ALCO has approved a duration gap of +2.5 years. As an auditor, what is your primary concern?

Accepted Answer

A positive duration gap exposes the bank to falling net interest income if rates rise

Answer

The bank is positioned to benefit from rising rates, which is always acceptable

Answer

A positive duration gap means assets reprice faster than liabilities

Answer

Duration gaps are only relevant for investment portfolio management

Question 3

Which of the following best describes residual risk in a bank's risk management framework?

Accepted Answer

The risk remaining after management controls and mitigants have been applied

Answer

The total gross risk before any controls are applied

Answer

Risk transferred to a third party through insurance or derivatives

Answer

The risk assigned to the internal audit function for monitoring

Question 4

An auditor reviewing operational risk finds that a bank has not updated its Business Continuity Plan (BCP) in three years. Which risk is most directly elevated?

Accepted Answer

Operational risk from untested recovery capabilities

Answer

Credit risk from unrecovered loan portfolios

Answer

Strategic risk from outdated product offerings

Answer

Compliance risk from failure to file regulatory reports

Question 5

Under Basel III, the Liquidity Coverage Ratio (LCR) requires banks to hold enough High-Quality Liquid Assets (HQLA) to cover what scenario?

Accepted Answer

A 30-day stress period of significant liquidity outflows

Answer

A 90-day period of normal market operations

Answer

A one-year horizon under Basel-defined macro stress

Answer

A 10-day period matching Value-at-Risk calculations

Question 6

When auditing model risk, which finding would represent the highest severity deficiency?

Accepted Answer

A credit scoring model in production use has never been independently validated

Answer

Model documentation is stored in a shared drive rather than a dedicated repository

Answer

Model validation reports are completed annually rather than semi-annually

Answer

The model inventory spreadsheet has not been updated in two months

Question 7

A bank's risk appetite statement sets a maximum tolerable loss from market risk at $5M per quarter. Current VaR estimates are $4.8M. What should the auditor recommend?

Accepted Answer

Escalate because VaR is approaching the risk appetite threshold with little buffer

Answer

No action is needed because actual loss has not exceeded the limit

Answer

Reduce the risk appetite limit to $4M to create a larger buffer

Answer

Transfer market risk to off-balance-sheet entities to reduce reported VaR