CPA Business Environment and Concepts (BEC) : Risk Management

Study concepts, example questions & explanations for CPA Business Environment and Concepts (BEC)

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Example Questions

Example Question #1 : Risk Management

Probability (risk) analysis is:

Possible Answers:

An extension of sensitivity analysis

Used only for situations in which the summation of probability weights is greater than one

Used only for situations involving five or fewer possible outcomes

Incompatible with sensitivity analysis

Correct answer:

An extension of sensitivity analysis

Explanation:

Probability analysis is an extension of sensitivity analysis.

Example Question #2 : Risk Management

Which of the following factors is inherent in a firm's operations if it utilizes only equity financing?

Possible Answers:

Marginal risk

Business risk

Interest rate risk

Financial risk

Correct answer:

Business 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.

Example Question #3 : Risk Management

If an investor's certainty equivalent is greater than the expected value of an investment alternative, the investor is said to be:

Possible Answers:

Cautious

Risk averse

Risk indifferent

Risk seeking

Correct answer:

Risk seeking

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.

Example Question #1 : Risk Management

The mission and vision of an organization most closely relate with its:

Possible Answers:

Strategy

Practices

Culture

Capabilities

Correct answer:

Strategy

Explanation:

Mission and vision are keywords associated with a firm's strategy.

Example Question #5 : Risk Management

The performance component of COSO's ERM framework is supported by which of the following principles?

Possible Answers:

Defines risk appetite

Establishes operating structure

Analyzes business context

Identifies risk

Correct answer:

Identifies risk

Explanation:

Identifies risk is included under the umbrella of performance.

Example Question #6 : Risk Management

Proper risk management includes all of the following except:

Possible Answers:

Ensuring proper internal controls

Well balanced risk tolerance

Secure levels of safety stock

Well compensated employees

Correct answer:

Well compensated employees

Explanation:

While choosing to compensate workers additionally is a good faith action, it does not assist in proper risk management.

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