CBA Auditing Risk Management Questions and Answers

Question 1

An auditor assesses a bank's inherent risk as high for its complex derivatives trading activities and its control risk as high due to a new, untested trading system. To maintain an acceptably low level of overall audit risk, what is the most appropriate action for the auditor regarding detection risk?

Accepted Answer

Set the acceptable level of detection risk to a low level by performing more extensive audit procedures.

Answer

The audit risk model states that Audit Risk = Inherent Risk x Control Risk x Detection Risk. Auditors aim to keep overall audit risk low. When inherent risk and control risk are assessed as high, the auditor must compensate by setting a low acceptable level for detection risk. This is achieved by increasing the nature, timing, and extent of substantive audit procedures to increase the likelihood of detecting material misstatements.

Question 2

During a review of a bank's risk management framework, an auditor notes that the board of directors has delegated oversight of risk management activities to an audit committee. Which of the following is a primary responsibility of the audit committee in this role?

Accepted Answer

Ensuring the independence and effectiveness of the internal and external audit functions.

Answer

The audit committee's primary role in risk management oversight is to ensure the independence and assess the performance of the internal and external auditors. This provides the board with independent assurance that risk management processes are effective. Day-to-day execution and system design are management's responsibilities, while setting the risk appetite is a core function of the full board of directors.

Question 3

A Certified Bank Auditor is evaluating the effectiveness of a bank's enterprise risk management (ERM) program based on the COSO framework. Which of the following activities best represents the 'Risk Assessment' component of the COSO framework?

Accepted Answer

Management uses a combination of qualitative and quantitative methods to analyze the potential likelihood and impact of identified risks.

Answer

The 'Risk Assessment' component of the COSO framework involves identifying, analyzing, and managing the risks that threaten the achievement of an organization's objectives. Analyzing the likelihood and impact of risks is a core activity of this component. Establishing a code of conduct relates to the Control Environment, follow-up reviews are part of Monitoring Activities, and segregation of duties is an example of Control Activities.

Question 4

In the context of the 'Three Lines of Defense' model for risk management in a bank, which function serves as the third line?

Accepted Answer

The internal audit function.

Answer

In the Three Lines of Defense model, the first line is business operations management, which owns and manages risk. The second line includes the risk management and compliance functions that provide oversight. The third line is the internal audit function, which provides independent and objective assurance on the effectiveness of governance, risk management, and internal controls to the board and senior management.

Question 5

A bank has recently launched a new mobile banking application with peer-to-peer payment capabilities. When auditing the risk management process for this new product, which of the following would be the auditor's primary concern regarding operational risk?

Accepted Answer

The risk of loss resulting from inadequate or failed internal processes, people, and systems.

Answer

Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events. A new mobile application introduces risks related to system failures, cybersecurity breaches, transaction processing errors, and potential for fraud, all of which fall under the category of operational risk. Interest rate risk, compliance risk, and strategic risk are other distinct risk categories.

(CBA) Certified Bank Auditor Practice Test

(CBA) Certified Bank Auditor Practice Test

CBA Auditing Risk Management Questions and Answers