Certified Management Accountant Risk Management 2 — Questions and Answers
Question 1: An enterprise risk management (ERM) framework primarily differs from traditional risk management because it:
- Focuses exclusively on financial risks
- Addresses risks in silos across departments
- Integrates risk management across the entire organization (Correct answer)
- Eliminates all identified risks before operations begin
Correct answer: Integrates risk management across the entire organization
ERM takes a holistic, enterprise-wide view of risk rather than managing risks in isolated departmental silos.
Question 2: Which risk response strategy involves purchasing insurance to offset potential losses?
- Risk avoidance
- Risk acceptance
- Risk transfer (Correct answer)
- Risk mitigation
Correct answer: Risk transfer
Risk transfer shifts the financial consequence of a risk to a third party, such as an insurer.
Question 3: A company's risk appetite is best described as:
- The maximum loss a company can sustain before bankruptcy
- The amount of risk an organization is willing to accept in pursuit of its objectives (Correct answer)
- The total number of risks identified in a risk register
- The residual risk remaining after all controls are applied
Correct answer: The amount of risk an organization is willing to accept in pursuit of its objectives
Risk appetite reflects the board-approved level of risk an organization is willing to tolerate to achieve strategic goals.
Question 4: In a risk heat map, a risk plotted in the upper-right quadrant typically indicates:
- Low likelihood and low impact
- High likelihood and low impact
- Low likelihood and high impact
- High likelihood and high impact (Correct answer)
Correct answer: High likelihood and high impact
The upper-right quadrant of a heat map represents risks with both high probability and high impact, requiring immediate attention.
Question 5: Which of the following is an example of inherent risk?
- Risk remaining after management applies internal controls
- Risk present in an activity before any controls are applied (Correct answer)
- Risk transferred to a third party via contract
- Risk accepted within the organization's tolerance threshold
Correct answer: Risk present in an activity before any controls are applied
Inherent risk is the raw level of risk in a process or activity before any mitigation or controls are in place.
Question 6: A company identifies that a new regulation could increase compliance costs significantly. This is best classified as:
- Strategic risk
- Operational risk
- Compliance risk (Correct answer)
- Reputational risk
Correct answer: Compliance risk
Compliance risk arises from the potential failure to meet legal, regulatory, or contractual obligations.
Question 7: Which quantitative risk assessment technique uses repeated random sampling to model the probability of various outcomes?
- Sensitivity analysis
- Decision tree analysis
- Monte Carlo simulation (Correct answer)
- Scenario analysis
Correct answer: Monte Carlo simulation
Monte Carlo simulation runs thousands of random trials to generate a probability distribution of possible outcomes.
Certified Management Accountant Risk Management 2
An enterprise risk management (ERM) framework primarily differs from traditional risk management because it: