Finance for Non-Finance Managers Risk Management and Internal Controls 3

Question 1

Enterprise Risk Management (ERM) differs from traditional risk management primarily because it:

Accepted Answer

Takes a holistic, organization-wide view of all risks and their interrelationships

Answer

Focuses only on insurable risks

Answer

Is used exclusively by large publicly traded companies

Answer

Only addresses financial statement risks

Question 2

Business continuity planning (BCP) is a risk management practice that primarily aims to:

Accepted Answer

Ensure critical business operations can continue during and after a disruptive event

Answer

Maximize profits during periods of rapid growth

Answer

Eliminate all operational risks within three years

Answer

Reduce the cost of employee salaries during downturns

Question 3

A company decides to exit a particular market because the financial risks are too high relative to the potential returns. This is an example of which risk response strategy?

Accepted Answer

Risk avoidance

Answer

Risk transfer

Answer

Risk mitigation

Answer

Risk acceptance

Question 4

A whistleblower policy in an organization is primarily designed to:

Accepted Answer

Encourage and protect employees who report unethical or illegal activities

Answer

Reward employees financially for exceeding sales targets

Answer

Penalize employees who make errors in financial reporting

Answer

Streamline the process for approving expense reports

Question 5

Which of the following statements best explains why diversification reduces financial risk?

Accepted Answer

It spreads exposure across different assets so losses in one area can be offset by gains in another

Answer

It guarantees that at least one investment will always be profitable

Answer

It eliminates all market risk from an investment portfolio

Answer

It reduces the total number of investments a company holds

Question 6

Compliance risk refers to the risk that a company will face penalties or reputational damage because it:

Accepted Answer

Fails to adhere to applicable laws, regulations, and internal policies

Answer

Earns lower-than-expected profits in a fiscal year

Answer

Introduces a new product that underperforms in the market

Answer

Hires employees without sufficient financial training

Question 7

When preparing a risk report for senior management, which of the following should be prioritized?

Accepted Answer

Highlighting high-probability, high-impact risks along with the controls in place and recommended actions

Answer

Listing every possible risk regardless of likelihood or impact

Answer

Focusing exclusively on risks that have already caused financial losses

Answer

Reporting only risks that are covered by the company's insurance policies