CFE Risk Management & Internal Controls 3

Question 1

An insurance company fails to update its risk register after entering a new line of business. Which phase of the risk management cycle has been neglected?

Accepted Answer

Risk monitoring and review

Answer

Risk monitoring and review requires continual updating of risk documentation when business activities change, ensuring the risk profile remains current.

Question 2

Which internal control principle requires that no single employee be able to both initiate and approve a financial transaction?

Accepted Answer

Segregation of duties

Answer

Segregation of duties divides transaction-processing responsibilities so one person cannot independently complete and conceal an entire transaction.

Question 3

A state insurance regulator uses risk-based examination scheduling to prioritize which companies receive on-site financial examinations FIRST. What is the PRIMARY criterion for this prioritization?

Accepted Answer

Companies exhibiting the greatest risk of insolvency or regulatory concern

Answer

Risk-based examination scheduling prioritizes companies that pose the greatest risk of financial distress or regulatory non-compliance to protect policyholders.

Question 4

Which risk response strategy involves reducing the likelihood or impact of a risk through implementing controls?

Accepted Answer

Risk mitigation

Answer

Risk mitigation (also called risk reduction) involves implementing controls or taking actions to lower the probability or impact of a risk event.

Question 5

An examiner finds that a company's IT access rights have not been reviewed for two years. This is BEST described as a deficiency in which COSO internal control component?

Accepted Answer

Monitoring Activities

Answer

Monitoring Activities requires ongoing evaluation of internal controls, including periodic reviews of user access rights, to ensure controls remain effective.

(CFE) Certified Financial Examiner Practice Test

(CFE) Certified Financial Examiner Practice Test

CFE Risk Management & Internal Controls 3