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BEC I and II > 2. Enterprise Risk Management Framework > Flashcards

2. Enterprise Risk Management Framework Flashcards

1
Q

What is ERM?

A

Enterprise Risk Management: The culture, capabilities, and practices by which organizations manage risk to create, preserve, and realize value (performance).

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2
Q

How does COSO define risk?

A

As neutral

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3
Q

What are 2 types of risks?

A

Negative risk and positive risk.

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4
Q

What are 6 elements needed to manage ERM?

A
  1. Culture
  2. Develop capabilities
  3. Adaptation and integration of ERM practices
  4. Integration with strategy-setting and performance
  5. Manage risks to strategy and business objectives
  6. Link to value through risk appetite
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5
Q

What is portfolio view?

A

A composite view of risk the entity faces

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6
Q

What is risk appetite?

A

The types and amount of risk that an organization is willing to accept

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7
Q

What is mission?

A

Why organization exists.

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8
Q

What is vision?

A

Aspiration for future

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9
Q

What are 3 risks that exists in strategy?

A
  1. Misalignment
  2. Implications
  3. Risk to success
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10
Q

What are ERM 5 components?

A
  1. Governance and culture
  2. Strategy and objective-setting
  3. Performance
  4. Review and revision
  5. Information, communication, and reporting
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11
Q

What is risk ceiling?

A

The maximum level of risk established by the entity

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12
Q

What is risk range?

A

The acceptable level of risk established by the entity

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13
Q

ERM: What are 5 responsibilities of governance and culture?

A
  1. Exercise board risk oversight: organizational bias, independence
  2. Establish operating structures
  3. Define desired culture
  4. Demonstrate commitment to core values
  5. Attract, develop, retail capable individuals
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14
Q

ERM: What are 4 responsibilities of strategy and objective?

A
  1. Analyze the business context - internal/external
  2. Define risk appetite
  3. Evaluate alternative strategies
  4. Formulate business objectives
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15
Q

ERM: What are 5 responsibilities of performance?

A
  1. Identify risk
  2. Assess severity of risk
  3. Prioritize risks
  4. Implement risk responses
  5. Develop portfolio view
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16
Q

ERM performance: Identify risks: what is risk inventory?

A

List of risks.

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17
Q

ERM performance: Identify risks: What are 7 examples of approaches and methods to identify risk?

A
  1. Cognitive computing (AI)
  2. Data tracking
  3. Interviews
  4. KRI (key risk indicators)
  5. Process analysis
  6. Workshop
  7. Make assumption known
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18
Q

ERM performance: Identify risks: what is prospect theory?

A

How risk is framed (presented) influence peoples response to risk.

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19
Q

ERM performance: assess severity of risks: what are 2 measures?

A

Impact and likelihood

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20
Q

ERM performance: assess severity of risks: what are 3 risks that should be considered?

A

Inherent risk (risk in the absence of efforts to address)
Target residual risk (the desired amount of risk after actions)
Actual residual risk (the realized risk after action)

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21
Q

ERM performance: Prioritize risks: What are 5 criteria?

A
  1. Adaptability
  2. Complexity
  3. Velocity (speed of risk impacts on the entity)
  4. Persistence
  5. Recovery
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22
Q

ERM performance: Implement risk responses: what are 6 risk responses?

A
  1. Accept
  2. Avoid
  3. Pursue
  4. Reduce
  5. Share
  6. Revisit objectives/strategy to reformulate
23
Q

ERM performance: develop portfolio view: what are 4 integration and view?

A
  1. Minimal integration - risk view
  2. Limited integration - risk category view
  3. Partial integration - risk profile view
  4. Full integration - portofolio view
24
Q

ERM performance: what is bot?

A

A software application thatruns automated (usually simple) tasks (scripts) on the internet. For example, bots to search a website (e.g., eBay, airlines) for bargains. Also called an internet bot or web robot.

25
Q

ERM performance: what is stress testing?

A

A method for testing risk portfolios - how different stressers change portfolio

26
Q

What should risk statement include?

A

A statement of risk and a statement of impact of the risk

27
Q

ERM monitoring, review, and revision: what are 3 responsibilities?

A
  1. Access substantial change
  2. Review risk and performance
  3. Pursue ERM improvement
28
Q

ERM monitoring, review, and revision: Access: what are 3 example of substantial change?

A

Rapid growth, innovation, major changes in leadership

29
Q

ERM communication and reporting: what are 3 responsibilities?

A
  1. Leverage information system
  2. Communicate risk information
  3. Report on risk, culture, and performance
30
Q

ERM communication and reporting: leveraging information system: Is relevant information structured?

A

Can be structured or unstructured.

31
Q

ERM communication and reporting: leveraging information system: what are 3 elements of effective datamanagrement?

A
  1. Data and information governance
  2. Process and controls
  3. Data management architecture
32
Q

ERM communication and reporting: which one is narrow; portfolio or profile?

A

Profile

33
Q

ERM communication and reporting: what is risk owner?

A

Managers or employees who are accountable for the effective management of identified risks.

34
Q

What is COSO’s definition of fraud?

A

any intentional act or omission designed to deceive others, resulting in the victim suffering a loss and/or the perpetrator achieving a gain

35
Q

What are 4 categories of fraud?

A
  1. Reporting fraud: financial: intentional misstatement of accounting information
  2. Reporting fraud: non financial: Manipulation
  3. Misappropriation of assets
  4. Other illegal acts and corruption
36
Q

What are 5 fraud risk management principles?

A
  1. Control environment
  2. Risk assessment
  3. Control activities
  4. Information and communication
  5. Monitoring activities
37
Q

What are 8 examples of fraud risk management though HR procedures?

A
  1. Background, credit, criminal checks
  2. Training
  3. Evaluating performance and compensation
  4. Annual employee surveys
  5. Exit interviews
  6. Segregation of duties
  7. Transaction level controls
  8. A whistleblower system
38
Q

What is fraud triangle?

A

Incentive and pressure
Opportunity
Attitude and rationalization

39
Q

What are 8 data analytics tools to support fraud management?

A
  1. Data stratification: sort or categorize data
  2. Risk scoring
  3. Data visualization
  4. Trend analysis
  5. Fluctuation analysis
  6. Statistical analysis and predictive modeling
  7. Integrating external data sources
40
Q

Corporate responsibility: what are 4 provisions to promote responsibility?

A
  1. Audit committee - authorization over internal auditors, independent directors, whistle blower system, engaging advisors
  2. Officer certification of FS.
  3. Misleading auditors is a crime
  4. Clawbacks: Officers must payback bonuses if have to materially restate FS
41
Q

Must officer certify only annual FS?

A

No, both quarterly and annual FS.

42
Q

What are 4 things officers must certify re: IC?

A
  1. Responsible for establishing/maintaining IC
  2. Their system will make relevant material info known
  3. Recently evaluated the effectiveness of IC
  4. Reported the conclusion about effectiveness of IC
43
Q

What are 3 things officers must certify re: FS?

A
  1. Reviewed FS
  2. No materially untrue statement
  3. FS is fairly presented
44
Q

What must officers do to auditors/committee and certify?

A

Reported sig deficiencies and material weaknesses in IC, any fraud

45
Q

What are 2 limitations for financial shenanigans?

A

Off-balance sheet transactions.

Limit on pro forma FS.

46
Q

What is the limitation about loans?

A

Prohibits public companies from making personal loans to top officers and directors unless its on market terms, in ordinary course of business, and available to the public as well.

47
Q

What must each annual report contain?

A

IC report

48
Q

What about CFO code of ethics?

A

SOX requires public companies to disclose whether or nor they have adopted a code of ethics for senior officers

49
Q

What is financial expert requirement?

A

at least one member of the audit committee be a “financial expert.”

50
Q

What are 2 types of activities re: document that are subject to criminal penalty?

A
  1. Destruction, alteration, falsification of record in federal investigations and bankruptcy
  2. Destruction of corporate audit documents
51
Q

How long must audit documents be kept?

A

5 years

52
Q

What is maximum penalty for white-collar crime due to enhancements?

A

$5 million in fines, and 20 yrs in jail.

53
Q

What is the penalty against retaliation of whistle blowers?

A

A fine and up to 10 yrs in prison.

BEC I and II (12 decks)

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