Risk Management Auditing Flashcards
7 cards from real CBA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Management Auditing flashcards as text
When auditing a bank's credit concentration risk, which metric is most critical to evaluate?
Answer: Single borrower exposures as a percentage of Tier 1 capital
Single borrower concentration relative to Tier 1 capital is the primary regulatory metric for measuring credit concentration risk.
A bank's ALCO has approved a duration gap of +2.5 years. As an auditor, what is your primary concern?
Answer: A positive duration gap exposes the bank to falling net interest income if rates rise
A positive duration gap means asset durations exceed liability durations, causing net interest income to decline when interest rates rise.
Which of the following best describes residual risk in a bank's risk management framework?
Answer: The risk remaining after management controls and mitigants have been applied
Residual risk is the exposure that remains after inherent risk is reduced by the effectiveness of existing controls.
An auditor reviewing operational risk finds that a bank has not updated its Business Continuity Plan (BCP) in three years. Which risk is most directly elevated?
Answer: Operational risk from untested recovery capabilities
An outdated and untested BCP leaves the bank vulnerable to operational disruptions it cannot recover from efficiently.
Under Basel III, the Liquidity Coverage Ratio (LCR) requires banks to hold enough High-Quality Liquid Assets (HQLA) to cover what scenario?
Answer: A 30-day stress period of significant liquidity outflows
The LCR requires banks to hold HQLA sufficient to cover net cash outflows over a 30-day stressed scenario.
When auditing model risk, which finding would represent the highest severity deficiency?
Answer: A credit scoring model in production use has never been independently validated
Using a production model without independent validation is a critical control failure that exposes the bank to undetected model errors affecting credit decisions.
A bank's risk appetite statement sets a maximum tolerable loss from market risk at $5M per quarter. Current VaR estimates are $4.8M. What should the auditor recommend?
Answer: Escalate because VaR is approaching the risk appetite threshold with little buffer
Proximity to appetite limits with minimal buffer warrants escalation so management can take proactive corrective action before a breach occurs.