Certified Public Accountant Risk Assessment & Management 5

Question 1

Which of the following is a leading indicator of liquidity risk for a company?

Accepted Answer

Declining current ratio over multiple quarters

Answer

A declining current ratio signals that the company may struggle to meet short-term obligations, making it a leading indicator of liquidity risk.

Question 2

The concept of 'tone at the top' primarily relates to which COSO Internal Control component?

Accepted Answer

Control Environment

Answer

Tone at the top refers to the ethical culture and commitment to integrity set by senior management and the board, which is a fundamental element of the Control Environment.

Question 3

Which risk response involves restructuring a business process to eliminate the source of a risk entirely?

Accepted Answer

Risk avoidance

Answer

Risk avoidance involves exiting or not engaging in activities that give rise to risk, effectively eliminating exposure by not participating in that activity.

Question 4

An auditor identifies that a client's revenue recognition policy is complex and subject to significant management judgment. This primarily affects which audit risk component?

Accepted Answer

Inherent risk

Answer

Inherent risk is elevated when transactions require significant judgment or complex accounting, independent of any related internal controls.

Question 5

A company purchases insurance to protect against potential property damage losses. This is an example of which risk response?

Accepted Answer

Risk transfer

Answer

Purchasing insurance transfers the financial consequence of a risk to the insurer, making it a classic example of risk transfer.

Certified Public Accountant Practice Test

Certified Public Accountant Practice Test

Certified Public Accountant Risk Assessment & Management 5