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Risk management Processes questions with actual answers.
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Risk management Processes questionswith actual answers.
Risk ANS -Risk is "the possibility of an event occurring that will have an impact on the achievement of
objectives. Risk is measured in terms of impact and likelihood" (IIA Glossary)
A. Risk management is "a process to identify, assess, manage and control potential events or situations
to provide reasonable assurance regarding the achievement of the organisations objectives" (IIA
Glossary)
- It is one of three processes specifically addressed in the Definition of internal Auditing.
Performance Standard 2120 - Risk Managment ANS -The internal audit activity must evaluate the
effectiveness and contribute to the improvement of risk management processes.
The Risk Management Process ANS -A. Risk management processes include
(1) identification of context
(2) risk identification
(3) risk assessment and prioritisation (i.e. risk analysis)
(4) risk response
(5) risk monitoring
Risk management process step 1 - identification of context ANS -Identification of context
1. A precondition to risk identification is identifying the significant contexts within which risks should be
managed.
2. Contexts include the following:
A. Laws and regulations
, B. Capital projects
C. Business processes
D. Technology
E. Market risk (e.g. interest rates, foreign exchange rates, equity investments)
F. Organisations
Risk management process step 2 - risk identification ANS -1. Risk identification should be performed at
every level of the entity (entity-level, division, business unit) relevant to the identified context(s)
A. Examples of external risk factors at the entity level include technological changes and changes in
customers wants and expectations.
B. Examples of internal risk factors at the entity level include:
- interruptions in automated systems,
- the quality of personnel hired, and
- the level of training provided
2. Some occurrences may be inconsequential at the entity level but disastrous for an individual unit
3. Risk identification should consider past events (trends) and future possibilities. Methods include:
A. Event inventories. Certain events are common to particular industries. Software is available that
provides lists that can be used as a starting point for event identification.
B. Questionnaires and surveys. Responses can be evaluated to identify potential events
C. Leading event indicators and escalation triggers. Leading event indicators are measures that provide
insight into potential events. An escalation trigger (threshold trigger), is a condition that a leading
indicator must satisfy before the potential event is escalated to management. E.g.:
- potential event: Manufacturing equipment breakdown, resulting in decreases in production
- leading event indicator: Maintenance requests
- escalation trigger: two maintenance requests outside of regularly scheduled maintenance within 3-
month period
D. Facilitated workshops and interviews. A facilitator leads a discussion group consisting of
management, staff, or other stakeholders through a structured process of conversation and exploration
about potential events.
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