CRMA - Certification in Risk Management Assurance Risk Management Governance Questions and Answers

Question 1

Which of the following BEST describes the primary role of the board of directors in risk management governance?

Accepted Answer

To establish the organization's risk appetite and provide oversight of the risk management framework.

Answer

The board of directors holds the ultimate responsibility for risk oversight. This includes setting the overall direction by defining the organization's risk appetite and ensuring a robust risk management framework is established and effectively operated by management. Direct management, detailed design, and conducting assessments are responsibilities delegated to senior management and their teams.

Question 2

In the context of the 'Three Lines Model' for risk governance, which function is considered part of the second line?

Accepted Answer

The compliance and enterprise risk management (ERM) functions.

Answer

The second line provides oversight and specialized expertise to support the first line. It includes functions like compliance, legal, and the central Enterprise Risk Management (ERM) function, which establish frameworks and policies. The first line consists of operational management (A), and the third line is internal audit (B). External audit (D) is an external assurance provider and not part of the internal three lines model.

Question 3

A company's sales team is compensated based solely on achieving high revenue targets, with no consideration for the creditworthiness of new clients. This has led to a significant increase in customer defaults and bad debt. This situation indicates a failure in which key aspect of risk management governance?

Accepted Answer

Aligning performance incentives and strategy with risk appetite.

Answer

Effective risk governance requires that an organization's strategy, objectives, and incentive structures are aligned with its risk appetite. In this scenario, the compensation plan encourages behavior (taking on high-credit-risk clients) that contradicts the likely objective of financial stability, demonstrating a clear failure in governance alignment.

Question 4

According to The Institute of Internal Auditors (IIA) standards, what is the primary role of the internal audit activity in risk management governance?

Accepted Answer

To provide objective assurance on the effectiveness of risk management processes.

Answer

The core role of internal audit in ERM is to provide independent and objective assurance to the board and management on the effectiveness of the organization's risk management activities. Taking on management responsibilities such as setting the risk appetite, making risk response decisions, or owning the ERM framework would impair the independence and objectivity essential to the internal audit function.

Question 5

An organization's board states that it is "willing to accept a moderate level of risk in pursuit of its strategic growth objectives." Management then specifies that any new project investment must not expose the company to a potential loss of more than 5% of its capital reserves. The 5% limit is an example of:

Accepted Answer

Risk tolerance

Answer

Risk appetite is the broad, high-level amount of risk an organization is willing to accept (the 'moderate level'). Risk tolerance is the specific, measurable deviation from objectives that an organization is willing to withstand (the '5% of capital reserves'). It translates the broad appetite into actionable and measurable terms for specific risks.

(CRMA) Certification in Risk Management Assurance Practice Test

(CRMA) Certification in Risk Management Assurance Practice Test

CRMA - Certification in Risk Management Assurance Risk Management Governance Questions and Answers