Risk Management
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CPA Auditing and Attestation (AUD) › Risk Management
Probability (risk) analysis is:
An extension of sensitivity analysis
Used only for situations involving five or fewer possible outcomes
Used only for situations in which the summation of probability weights is greater than one
Incompatible with sensitivity analysis
Explanation
Probability analysis is an extension of sensitivity analysis.
Which of the following factors is inherent in a firm's operations if it utilizes only equity financing?
Interest rate risk
Business risk
Marginal risk
Financial risk
Explanation
Business risk represents the risk associated with the unique circumstances of a particular company, as they might affect the shareholder value of that company.
If an investor's certainty equivalent is greater than the expected value of an investment alternative, the investor is said to be:
Risk indifferent
Cautious
Risk seeking
Risk averse
Explanation
If an investor's certainty equivalent is greater than the expected value of an investment alternative, the investor is said to be risk seeking.
The mission and vision of an organization most closely relate with its:
Strategy
Capabilities
Culture
Practices
Explanation
Mission and vision are keywords associated with a firm's strategy.
The performance component of COSO's ERM framework is supported by which of the following principles?
Establishes operating structure
Defines risk appetite
Analyzes business context
Identifies risk
Explanation
Identifies risk is included under the umbrella of performance.
Proper risk management includes all of the following except:
Ensuring proper internal controls
Secure levels of safety stock
Well balanced risk tolerance
Well compensated employees
Explanation
While choosing to compensate workers additionally is a good faith action, it does not assist in proper risk management.