CRMA Knowledge 1

Question 1

Which of the following best defines the term "risk appetite" in the context of risk management?

Accepted Answer

The overall effect risks that an organization is ready to bear in order to achieve its goals.

Answer

Risk appetite defines the amount and type of risk an organization is willing to accept or take in pursuit of its objectives. It's not merely the maximum level, but a strategic consideration of how much risk is acceptable across various activities to achieve desired outcomes. This definition encompasses the strategic alignment of risk-taking with organizational goals.

Question 2

What is the major responsibility of leadership in creating a risk-aware culture in an organization?

Accepted Answer

Leading by example and exhibiting risk-aware conduct

Answer

Leadership plays a crucial role in shaping an organization's culture. When leaders consistently demonstrate risk-aware behavior, communicate openly about risks, and integrate risk considerations into decision-making, it sets a powerful precedent for the entire organization. This 'leading by example' approach fosters a culture where employees understand and embrace risk management as a shared responsibility, rather than just a compliance task.

Question 3

An internal auditor for a multinational retail chain thinks that a shop manager has been skimming money from cash sales by recording the transactions as accounts receivable and then writing down the accounts as bad debts. Which of the following anomalies is the most likely source of the auditor's concern?

Accepted Answer

Bad debt expenditure is substantially greater as a percentage of sales than at comparable retailers.

Answer

If a manager is skimming cash sales and then writing them off as bad debts, this fraudulent activity would artificially inflate the bad debt expense relative to actual legitimate sales. Comparing this bad debt percentage to that of comparable retailers (benchmarking) would highlight an unusual and significantly higher rate, as similar businesses would likely have similar legitimate bad debt rates. This discrepancy would strongly indicate a problem with sales recording and bad debt write-offs.

Question 4

Which of the following circumstances represents a possible internal control weakness?

Accepted Answer

The employee who makes bank deposits also produces the monthly bank reconciliation.

Answer

This scenario represents an internal control weakness due to a lack of segregation of duties. The employee making deposits has custody of assets (cash) and also performs the reconciliation, which is a record-keeping function. This combination allows for the potential concealment of theft or errors, as the employee could misappropriate funds and then manipulate the reconciliation to cover it up.

Question 5

An organization has introduced a new automated payroll system that includes a table of pay rates based on employee job categories. Which control should an internal auditor recommend to guarantee that the table is accurately updated and only utilized for legitimate pay changes?

Accepted Answer

Any employee compensation modifications must be authorized and signed off on by a manager who is independent of the system and is unable to modify the table.

Answer

This control ensures proper segregation of duties and independent authorization. By requiring a manager who is independent of the system and unable to modify the table to authorize changes, it prevents unauthorized or fraudulent pay rate adjustments. This separation minimizes the risk of an individual making and then concealing improper modifications to employee compensation.

(CRMA) Certification in Risk Management Assurance Practice Test

(CRMA) Certification in Risk Management Assurance Practice Test

CRMA Knowledge 1