CFE Risk Management & Internal Controls 2

Question 1

Under the COSO ERM framework, which component involves identifying potential events that could affect an organization's ability to achieve its objectives?

Accepted Answer

Event Identification

Answer

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

Question 2

A financial examiner discovers that a company's management has the ability to override established internal controls. This situation MOST directly threatens which objective of internal controls?

Accepted Answer

Reliability of financial reporting

Answer

Management override of controls most directly undermines the reliability of financial reporting, as it creates a pathway for intentional misstatement.

Question 3

A residual risk level that exceeds an organization's risk appetite should MOST appropriately trigger which action?

Accepted Answer

Implementing additional controls or revising risk response

Answer

When residual risk exceeds risk appetite, management must implement additional controls or adjust the risk response strategy to bring exposure within acceptable limits.

Question 4

Which type of insurance mechanism allows an insurer to limit exposure by passing a portion of risk to another insurer?

Accepted Answer

Reinsurance

Answer

Reinsurance is the mechanism by which an insurer transfers a portion of its risk exposure to a reinsurer to limit its own potential losses.

Question 5

During an examination of an insurance company, which internal control is MOST effective at detecting unauthorized changes to policy reserve calculations?

Accepted Answer

Periodic reconciliation of reserve reports to the general ledger

Answer

Periodic reconciliation of reserve reports to the general ledger is a detective control that identifies discrepancies between actuarial records and financial records.

(CFE) Certified Financial Examiner Practice Test

(CFE) Certified Financial Examiner Practice Test

CFE Risk Management & Internal Controls 2