Risk Assessment & Management Flashcards
7 cards from real Certified Public Accountant 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 Assessment & Management flashcards as text
Which component of the COSO ERM framework addresses how an entity identifies potential events that may affect the entity?
Answer: Event Identification
Event Identification is the COSO ERM component focused on recognizing internal and external events that could affect achievement of objectives.
A company's board of directors reviews management's risk appetite annually. This activity primarily demonstrates which risk governance principle?
Answer: Board oversight of risk management
Board oversight of risk management is demonstrated when the board reviews and approves the risk appetite set by management.
In a risk matrix, a risk scored as high likelihood but low impact would most appropriately be handled by:
Answer: Monitor and control with standard procedures
Risks with high likelihood but low impact are best managed through ongoing monitoring and standard control procedures rather than escalation or transfer.
Which type of audit risk arises from the possibility that a material misstatement will not be detected by the auditor's procedures?
Answer: Detection risk
Detection risk is the risk that the auditor's substantive procedures will fail to detect a material misstatement that exists in an account balance or disclosure.
An entity accepts certain risks because the cost of mitigation exceeds the expected loss. This is an example of which risk response strategy?
Answer: Risk acceptance
Risk acceptance occurs when management decides to accept a risk because the cost or difficulty of responding exceeds the potential benefit.
Residual risk is best defined as:
Answer: The risk remaining after management applies risk responses
Residual risk is the risk that remains after management has implemented risk responses and internal controls.
Which risk assessment technique involves assigning numerical probabilities to possible outcomes to calculate expected value?
Answer: Probabilistic modeling
Probabilistic modeling uses statistical techniques to assign probabilities to outcomes and compute expected values for risk analysis.