Auditing Risk Management Flashcards
7 cards from real CBA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Auditing Risk Management flashcards as text
Which of the following scenarios represents a 'tail risk' that a bank's risk management framework must specifically address?
Answer: A simultaneous global financial crisis causing correlated defaults across multiple asset classes
Tail risk refers to low-probability, high-impact events beyond normal VaR models, such as correlated systemic failures that can cause catastrophic losses.
An auditor reviewing a bank's vendor management program in the context of operational risk should verify that:
Answer: Critical third-party vendors undergo due diligence, ongoing monitoring, and contingency planning
Regulatory guidance (OCC 2013-29) requires banks to perform due diligence, continuous monitoring, and maintain contingency plans for critical third-party relationships.
In the context of bank auditing, 'risk tolerance' differs from 'risk appetite' in that risk tolerance:
Answer: Represents the acceptable variation around risk appetite limits before escalation is required
Risk tolerance defines the acceptable variation or buffer around the stated risk appetite, triggering escalation when breached before the hard limit is reached.
When auditing a bank's anti-money laundering (AML) risk management framework, which element is most critical to verify?
Answer: Customer risk ratings are periodically reviewed and transaction monitoring alerts are investigated and documented
Effective AML risk management requires risk-based customer ratings, timely alert investigation, and thorough documentation to support regulatory examination.
A bank auditor is reviewing the adequacy of the Allowance for Credit Losses (ACL) under CECL. Which finding would be most concerning?
Answer: Historical loss data inputs are sourced from fewer than two economic cycles
CECL requires banks to consider losses over the life of the loan using reasonable and supportable forecasts; insufficient historical data spanning multiple cycles undermines model reliability.
Which of the following best describes the purpose of a bank's Risk Committee at the board level?
Answer: To provide oversight of the bank's overall risk profile, risk appetite, and risk management framework
The Board Risk Committee provides governance-level oversight of the bank's aggregate risk profile and ensures the risk management framework is appropriate and effective.
During an audit of a bank's interest rate risk management, the auditor finds that the Asset-Liability Committee (ALCO) meets quarterly but last reviewed the interest rate risk limits 18 months ago. This represents a deficiency in:
Answer: Risk limit governance and periodic review
Interest rate risk limits should be reviewed at least annually; an 18-month gap indicates a governance breakdown in the ALCO's limit review responsibilities.