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Internal Audit Ch 4- Risk Management questions with answers.
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Internal Audit Ch 4- Risk Managementquestions with answers.
COSO definition of Risk ANS - possibility that an event will occur and adversely affect the achievement
of an objective
ISO 31000 definition of Risk ANS - the effect of uncertainty on objectives
Risk ANS - any issue that will keep you from achieving your objectives
Why has Risk Management become a hot topic? ANS - historical methods have been insufficient for
today's business and regulatory environment
-risk management has been done informally or in organizational silos
-"risk surprises" have occurred in organizations without a formal process to evaluate and communicate
risk management activities
Business Drivers for better Risk Management ANS - -financial losses and/or damaged reputation from
actual risk events
-challenging global and volatile economic environment
-investors demanding more corporate visibility and accountability for risk management
-rating agencies evaluating risk management program effectiveness
-increasing risks from technology
Regulatory Drivers ANS - NYSE requires audit committees to discuss risk management- 2003
SEC Proxy Disclosure rules- 2009
financial institutions have more rigorous requirements around risk management
, Enterprise Risk Management (ERM) ANS - process conducted by management to understand and deal
with uncertainties (risks and opportunities) that could affect the organization's ability to achieve
objectives
ERM adds organizational value ANS - -involves board in discussion
-helps align or around enterprise strategy, increasing likelihood of achieving objectives
-creates common language and approach to managing risk efficiently
-provides routine process that updates organizational risk profile
-increases management confidence related to taking on new initiatives
-results in cost reduction opportunities by reducing surprises and increasing efficiency of internal risk
management spend
COSO ANS - National Commission on Fraudulent Financial Reporting- organized in 1985 by 5 major
professional organizations in reaction to instances of fraud in 1970s
studied financial reporting systems for 2 years
COSO defines ERM as a process that is ANS - -tied to organization's strategic goals
-geared to the achievement of objectives
-designed to identify emerging events with the potential to affect the entity, assess the potential impact
consistently and to manage risk within a pre-determined risk appetite
-built into routine business practices
-applied across the enterprise
COSO 3 Foundational Aspects ANS - 1. starts with objectives
a. strategic
b. operations
c. reporting
d. compliance
2. applies to activities at all levels of organization
3. has eight interrelated elements
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