Certified Public Accountant Risk Assessment & Management 2

Question 1

Which component of the COSO ERM framework addresses how an entity identifies potential events that may affect the entity?

Accepted Answer

Event Identification

Answer

Event Identification is the COSO ERM component focused on recognizing internal and external events that could affect achievement of objectives.

Question 2

A company's board of directors reviews management's risk appetite annually. This activity primarily demonstrates which risk governance principle?

Accepted Answer

Board oversight of risk management

Answer

Board oversight of risk management is demonstrated when the board reviews and approves the risk appetite set by management.

Question 3

In a risk matrix, a risk scored as high likelihood but low impact would most appropriately be handled by:

Accepted Answer

Monitor and control with standard procedures

Answer

Risks with high likelihood but low impact are best managed through ongoing monitoring and standard control procedures rather than escalation or transfer.

Question 4

Which type of audit risk arises from the possibility that a material misstatement will not be detected by the auditor's procedures?

Accepted Answer

Detection risk

Answer

Detection risk is the risk that the auditor's substantive procedures will fail to detect a material misstatement that exists in an account balance or disclosure.

Question 5

An entity accepts certain risks because the cost of mitigation exceeds the expected loss. This is an example of which risk response strategy?

Accepted Answer

Risk acceptance

Answer

Risk acceptance occurs when management decides to accept a risk because the cost or difficulty of responding exceeds the potential benefit.

Certified Public Accountant Practice Test

Certified Public Accountant Practice Test

Certified Public Accountant Risk Assessment & Management 2