CSM Risk Management & Corporate Governance 2 — Questions and Answers
Question 1: Which board committee is primarily responsible for overseeing the integrity of a company's financial statements and internal controls?
- Compensation Committee
- Audit Committee (Correct answer)
- Nominating Committee
- Risk Committee
Correct answer: Audit Committee
The Audit Committee oversees financial reporting, internal controls, and the external audit process to ensure integrity of financial statements.
Question 2: A company's enterprise risk appetite statement should be MOST closely aligned with which of the following?
- Short-term quarterly earnings targets
- The strategic objectives and stakeholder expectations (Correct answer)
- Competitor risk tolerance levels
- Regulatory minimum compliance thresholds
Correct answer: The strategic objectives and stakeholder expectations
Risk appetite must be calibrated to the organization's strategic objectives and what key stakeholders consider acceptable levels of uncertainty.
Question 3: Which risk treatment option involves shifting potential financial loss to a third party, such as through insurance?
- Risk avoidance
- Risk reduction
- Risk transfer (Correct answer)
- Risk acceptance
Correct answer: Risk transfer
Risk transfer moves the financial consequence of a risk to another party, most commonly through insurance or contractual arrangements.
Question 4: In corporate governance, the concept of 'separation of powers' is best exemplified by which practice?
- Outsourcing legal functions to external counsel
- Separating the roles of CEO and Board Chair (Correct answer)
- Using multiple accounting firms for auditing
- Delegating strategy to middle management
Correct answer: Separating the roles of CEO and Board Chair
Separating the CEO and Board Chair roles prevents excessive concentration of power and ensures independent oversight of management.
Question 5: A risk heat map plots risks according to which two primary dimensions?
- Cost and time
- Likelihood and impact (Correct answer)
- Frequency and velocity
- Severity and detectability
Correct answer: Likelihood and impact
A risk heat map visualizes risks by mapping their probability of occurrence (likelihood) against their potential consequence (impact).
Question 6: Which governance principle states that board members must act in the best interest of the corporation rather than personal interests?
- Transparency principle
- Duty of loyalty (Correct answer)
- Duty of care
- Accountability principle
Correct answer: Duty of loyalty
The duty of loyalty requires directors to prioritize the corporation's interests over their own personal or financial interests.
Question 7: An organization decides NOT to enter a new high-risk market segment after risk assessment. This decision is an example of which risk response?
- Risk mitigation
- Risk transfer
- Risk avoidance (Correct answer)
- Risk exploitation
Correct answer: Risk avoidance
Risk avoidance involves deciding not to pursue an activity that carries unacceptable risk, thereby eliminating that risk entirely.
CSM Risk Management & Corporate Governance 2
Which board committee is primarily responsible for overseeing the integrity of a company's financial statements and internal controls?