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 #11 : Operations Management: Planning Techniques

Probability (risk) analysis is:

Possible Answers:

An extension of sensitivity analysis

Incompatible with 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

Correct answer:

An extension of sensitivity analysis

Explanation:

Probability analysis is an extension of sensitivity analysis.

Example Question #12 : Operations Management: Planning Techniques

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

Possible Answers:

Business risk

Interest rate risk

Financial risk

Marginal 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 #1 : 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:

Risk seeking

Risk averse

Cautious

Risk indifferent

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 #2 : Risk Management

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

Possible Answers:

Capabilities

Practices

Strategy

Culture

Correct answer:

Strategy

Explanation:

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

Example Question #3 : Risk Management

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

Possible Answers:

Identifies risk

Analyzes business context

Establishes operating structure

Defines risk appetite

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:

Well balanced risk tolerance

Well compensated employees

Secure levels of safety stock

Ensuring proper internal controls

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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