Audit Procedures & Risk Mitigation Flashcards
7 cards from real ERAC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Audit Procedures & Risk Mitigation flashcards as text
Which regulatory body primarily oversees energy derivatives trading conducted by U.S. financial market participants?
Answer: CFTC
The Commodity Futures Trading Commission (CFTC) has primary jurisdiction over energy commodity derivatives and futures markets in the United States.
An auditor reviewing a pipeline company's credit risk finds no netting agreements with counterparties. What risk does this create?
Answer: Gross rather than net credit exposure, inflating potential losses
Without netting agreements, credit exposure is calculated on a gross basis, meaning gains and losses cannot offset each other, significantly overstating the true credit risk.
When auditing an oil refinery's operational risk controls, which document best evidences that emergency shutdown procedures have been tested?
Answer: Drill logs and post-exercise after-action reports
Drill logs and after-action reports provide direct evidence that emergency shutdown procedures have been executed and reviewed, confirming control effectiveness.
A risk auditor is assessing basis risk in a natural gas hedge. Basis risk arises when:
Answer: The price of the hedged commodity and the hedging instrument do not move in lockstep
Basis risk occurs when the hedging instrument (e.g., Henry Hub futures) and the physical commodity price at the delivery location do not move in perfect correlation.
Under CFTC rules, what is the primary obligation of a registered swap dealer when managing counterparty credit risk?
Answer: To establish and maintain credit support annexes and initial margin requirements
Registered swap dealers must establish Credit Support Annexes (CSAs) and comply with initial and variation margin requirements to manage counterparty credit risk under CFTC regulations.
An energy audit reveals that a wind farm operator relies on a single weather forecast provider for generation planning. This represents which type of operational risk?
Answer: Single-point-of-failure or vendor concentration risk
Dependence on a single forecast provider creates a vendor concentration or single-point-of-failure risk, where disruption to that provider impacts the operator's ability to plan generation.
What is the key difference between a risk audit and a financial audit in the energy sector?
Answer: Risk audits assess the effectiveness of risk management frameworks and controls, not just financial statements
A risk audit evaluates whether risk management policies, procedures, limits, and controls are effective, whereas a financial audit focuses on the accuracy of financial statements.