QFC Internal Controls & Risk Assessment 2

Question 1

Which of the following best describes a 'control deficiency' under PCAOB standards?

Accepted Answer

A design or operating shortfall that prevents timely detection or prevention of misstatements

Answer

A control deficiency exists when the design or operation of a control does not allow management or employees to detect or prevent misstatements on a timely basis.

Question 2

In a quantitative risk assessment, which metric measures the average loss expected from a risk event over a given time horizon?

Accepted Answer

Expected Loss (EL)

Answer

Expected Loss (EL) is calculated as the product of Probability of Default, Loss Given Default, and Exposure at Default, representing the mean anticipated loss.

Question 3

A firm discovers that its reconciliation controls for derivatives positions are performed monthly rather than daily. This is best classified as a:

Accepted Answer

Significant deficiency

Answer

Because it is less than a material weakness but more than an immaterial deficiency, and warrants attention by those charged with governance, it qualifies as a significant deficiency.

Question 4

The Three Lines of Defense model assigns internal audit to which line?

Accepted Answer

Third line

Answer

Internal audit constitutes the third line, providing independent assurance over the effectiveness of risk management and controls operated by the first and second lines.

Question 5

Which stress testing approach applies predefined adverse macroeconomic scenarios to a portfolio to estimate potential losses?

Accepted Answer

Scenario analysis

Answer

Scenario analysis uses hypothetical or historical adverse scenarios (e.g., a severe recession) to evaluate portfolio losses under specified conditions.

(QFC) Quantitative Finance Certification Practice Test

(QFC) Quantitative Finance Certification Practice Test

QFC Internal Controls & Risk Assessment 2