ERAC Audit Procedures & Risk Mitigation 2

Question 1

During an energy risk audit, which sampling technique is most appropriate when the auditor suspects fraud concentrated in high-value transactions?

Accepted Answer

Stratified sampling

Answer

Stratified sampling divides the population into subgroups and oversamples high-risk strata, making it ideal when risk is concentrated in specific segments like high-value transactions.

Question 2

A natural gas distributor wants to hedge against price volatility. Which derivative instrument provides the right but not the obligation to purchase gas at a fixed price?

Accepted Answer

Call option

Answer

A call option grants the buyer the right, but not the obligation, to purchase the underlying commodity at a specified strike price before expiration.

Question 3

An energy auditor finds that a utility's Value at Risk (VaR) model uses a 95% confidence interval over a 10-day holding period. What does a VaR of $5 million mean in this context?

Accepted Answer

There is a 5% chance losses will exceed $5M over 10 days

Answer

A 95% VaR of $5M means there is a 5% probability that losses will exceed $5 million over the specified 10-day holding period.

Question 4

Which internal control is most effective at preventing unauthorized energy trades from being executed?

Accepted Answer

Dual-control authorization with segregation of duties

Answer

Dual-control authorization combined with segregation of duties ensures no single individual can initiate and approve a trade, preventing unauthorized transactions.

Question 5

During a compliance audit, an auditor discovers that a power company's risk limits were breached for three consecutive days without escalation. This primarily indicates a failure in:

Accepted Answer

Limit monitoring and escalation procedures

Answer

Failure to escalate limit breaches within the required timeframe indicates a breakdown in the limit monitoring and escalation control procedures.

(ERAC) Energy Risk Auditor Certification Practice Test

(ERAC) Energy Risk Auditor Certification Practice Test

ERAC Audit Procedures & Risk Mitigation 2