BEC - B1 (Definitions)

Question 1

Enterprise Risk Management: What is the underlying premise?

Answer 1

Every entity exists to provide value for stakeholders. All entities face risk in the pursuit of value for stakeholders

Question 2

How do we define ERM?

Answer 2

The “culture, capabilities, and practices, integrated with strategy-setting and performance, that organizations rely on to manage risk in creating, preserving, and realizing value”

Question 3

ERM is defined by five interrelated components. Each has various relevant principles. What are the five components?

Answer 3

Governance and Culture
Strategy and Objective Setting
Performance
Review and Revision
Information, Communication, and Reporting (Ongoing)

Question 4

What are the principles of Governance and Culture (as an ERM component):

Answer 4

• Defines desired culture
• Exercises broad oversight
• Demonstrates commitment to core values
• Attracts, develops, and retains capable individuals (employees)
• Establishes operating structure

Question 5

What are the principles of Strategy and Objective Setting (as an ERM component)?

Answer 5

• Evaluates alternative strategies
• Formulates business objectives
• Analyzes business context
• Defines risk appetite

Question 6

What are the principles of Performance (ERM component)?

Answer 6

• Develops portfolio view
• Assesses severity of risk
• Prioritizes risk
• Identifies risks (events)
• Implements risk responses

Question 7

What are the principles of Review and Revision (as an ERM component)?

Answer 7

• Assesses substantial change
• Pursues improvement in ERM
• Reviews risk and performances

Question 8

What are the principles of Information, Communication, and Reporting (Ongoing) - as far as an ERM component?

Answer 8

• Leverages information and technology
• Communicates risk information
• Reports on risk culture and performance

Question 9

Transaction Exposure (as it relates to Currency Exchange Rate Risk)

Answer 9

Potential taht an organization could suffer economic loss or experience gain upon settlement of individual transactions, as a result of changes in exchange rates

Question 10

Economic exposure

Answer 10

Potential that the PV of cash flows could increase/decrease as a result of changes in exchange rates

Question 11

Translation exposure

Answer 11

Potential that the entity’s FS components will be affected by exchange rate changes