CFC CFC Risk Management & Insurance 1 — Questions and Answers
Question 1: Which risk management framework is most commonly referenced by US financial controllers for enterprise-wide risk oversight?
- COSO ERM Framework (Correct answer)
- ISO 9001
- PRINCE2
- Six Sigma
Correct answer: COSO ERM Framework
The COSO Enterprise Risk Management (ERM) Framework is the leading standard US financial controllers use to identify, assess, and respond to enterprise-wide risks.
Question 2: A financial controller identifying risks that could prevent the company from achieving its strategic objectives is performing which step of the ERM process?
- Risk identification (Correct answer)
- Risk response
- Risk monitoring
- Risk acceptance
Correct answer: Risk identification
Risk identification is the process of recognizing potential events or conditions that could negatively impact the achievement of organizational objectives.
Question 3: What does 'residual risk' mean in the context of enterprise risk management?
- Risk remaining after controls are applied (Correct answer)
- Risk that cannot be insured
- Risk transferred to a third party
- Risk accepted without mitigation
Correct answer: Risk remaining after controls are applied
Residual risk is the level of risk that remains after management has implemented controls and other risk responses.
Question 4: Which type of insurance protects a company's directors and officers against personal losses from lawsuits alleging wrongful acts in their capacity as leaders?
- D&O Insurance (Correct answer)
- General Liability Insurance
- Professional Indemnity Insurance
- Workers' Compensation
Correct answer: D&O Insurance
Directors and Officers (D&O) insurance covers legal defense costs and damages for claims alleging wrongful acts by corporate leaders.
Question 5: A financial controller calculates that a risk event has a 20% probability and a $500,000 potential impact. What is the expected monetary value (EMV) of this risk?
- $100,000 (Correct answer)
- $500,000
- $25,000
- $250,000
Correct answer: $100,000
EMV is calculated by multiplying the probability by the impact: 20% × $500,000 = $100,000.
Question 6: Which risk response strategy involves shifting the financial consequences of a risk to a third party through insurance or outsourcing?
- Risk transfer (Correct answer)
- Risk avoidance
- Risk acceptance
- Risk mitigation
Correct answer: Risk transfer
Risk transfer moves the financial burden of a risk to another party, most commonly through purchasing insurance or contractual indemnification clauses.
CFC CFC Risk Management & Insurance 1
Which risk management framework is most commonly referenced by US financial controllers for enterprise-wide risk oversight?