Certified Management Accountant Risk Management 3

Question 1

The COSO ERM framework identifies how many interrelated components?

Accepted Answer

Eight

Answer

The original COSO ERM framework (2004) consists of eight interrelated components, later updated in 2017 to five components.

Question 2

A manufacturer decides to discontinue a product line because the liability risk is too high. This risk response is called:

Accepted Answer

Risk avoidance

Answer

Risk avoidance eliminates the risk entirely by deciding not to engage in the activity that creates the risk.

Question 3

Key Risk Indicators (KRIs) are best used to:

Accepted Answer

Provide early warning signals of increasing risk exposure

Answer

KRIs are forward-looking metrics that signal when risk levels are trending toward unacceptable thresholds.

Question 4

Which term describes the risk that remains after management has implemented controls?

Accepted Answer

Residual risk

Answer

Residual risk is the level of risk exposure remaining after controls and other risk responses have been applied.

Question 5

An organization's risk tolerance differs from risk appetite in that risk tolerance refers to:

Accepted Answer

The maximum acceptable variation around an objective before action is required

Answer

Risk tolerance is the acceptable deviation from risk appetite — the operational boundary within which management must stay.

Certified Management Accountant Practice Test