Module 1 - Quiz 1

Question 1

Risk mitigation in ancient Greece

Answer 1

involved attending to gods and human actions

Question 2

Evidence of risk management practices goes as far back as

Answer 2

Ancient Greece

Question 3

What determined risky events in ancient Greece

Answer 3

Gods

Question 4

Financial Events That Shaped Risk Management

Answer 4

• Early 2000s – Accounting scandals at major companies
• 2007-2009 Global Financial Crisis

Question 5

Sarbanes Oxley Act (SOX; 2002) purpose

Answer 5

prevent a firm’s management from interfering with an independent financial audit & protect the public from fraudulent/erroneous practices

Question 6

Dodd-Frank Act 2010

Answer 6

primary focus was to regulate the financial services industry and stop mortgage companies from taking advantage of consumers

Question 7

Financial Stability Oversight Council (FSOC)

Answer 7

identifies risks that affect the financial industry and keeps large banks in check

Question 8

Consumer Financial Protection Bureau (CFPB)

Answer 8

protects consumers from corrupt business practices of banks

Question 9

Office of Credit Ratings

Answer 9

ensures that rating agencies (Fitch, S&P, Moody’s) provide reliable credit ratings to those they evaluate

Question 10

Federal Insurance Office

Answer 10

A whistle-blowing provision in the law encourages anyone with information about violations to report it to the government for a
financial reward

Question 11

Enterprise Risk Management

Answer 11

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 12

Risk Capacity

Answer 12

The maximum amount of risk that an entity is able to absorb in the pursuit of strategy and business objectives

Question 13

Risk Appetite

Answer 13

The types and amount of risk, on a broad level, an organization is willing to accept in pursuit of value

Question 14

Risk Tolerance

Answer 14

Boundaries of acceptable variation in performance related to achieving business objectives

Question 15

Risk Portfolio View

Answer 15

A composite view of risk the entity faces

• which positions management and the Board of Directors to consider the types, severity,
  and interdependencies of risks and how they may affect the entity’s performance
  relative to its strategy and business objectives

Question 16

Risk Profile

Answer 16

A composite view of the risk assumed at a particular level of the entity

• or aspect of the business that positions management to consider the types, severity, and interdependencies of risks, and how they may affect performance relative to the strategy and business objectives

Question 17

Risk Inventory

Answer 17

All risks that could impact an entity

Question 18

Prevailing Risk Management Frameworks

Answer 18

• Reduce Complexity
• Clarify Roles
• Ensure Consistency

Question 19

Reduce Complexity Framework

Answer 19

Coordinating efforts across different business units, control functions, and regulations. They ensure that no work is duplicated, no risks are overlooked, including regulatory risks.

Question 20

Clarify Roles Framework

Answer 20

Frameworks help stakeholders understand their roles in risk management, promoting collaboration across departments and within organizational units

Question 21

Ensure Consistency Framework

Answer 21

Frameworks provide a stable foundation for communication and risk management evaluation, regardless of leadership changes. They help establish industry standards by offering a consistent approach over time.

Question 22

Who established the prevailing frameworks?

Answer 22

• Committee of Sponsoring Organization of the Treadway Commission (COSO)
• International Standards Organization (ISO 31000)
• Basel Committee on Banking Supervision (BCBS) (World standard)
• OCC Heightened Standards for Large Financial Institutions (U.S. Variation)

Question 23

Committee of Sponsoring Organization of the Treadway Commission (COSO)

Answer 23

It’s a voluntary private-sector initiative made in the mid-80s dedicated to improving organizational performance and governance focusing on
▪ Effective controls
▪ Enterprise risk management
▪ Fraud deterrence

Question 24

Five committees that sponsored COSO

Answer 24

• Institute of Management Accountants (IMA)
• The American Institute of Certified Public Accountants (AICPA)
• The American Accounting Association (AAA)
• The Institute of Internal Auditors (IIA)
• The Financial Executive Institute (FEI)

Question 25

Two distinct frameworks of COSO

Answer 25

• Internal Control (2013)
• Enterprise Risk Management (2017)

Question 26

Key Players in Corporate Governance

Answer 26

• Board of Directors (BoD)
• Management
• Shareholders
• Other stakeholders

Question 27

Board of Directors

Answer 27

• Oversee management & business strategy
• monitor/evaluate the CEO’s performance
• Delegate authority to the CEO
• Play a direct role in committees

Question 28

Is there a Board structure that is right for every entity?

Answer 28

No

Question 29

The Board Structure is made up of

Answer 29

• Size
• Composition
• Characteristics
• Experience
• Independence

Question 30

Board Committees

Answer 30

• Audit Committee
• Nominating Committee
• Compensation Committee

Question 31

Audit Committee

Answer 31

provide oversight of the financial reporting process, the audit process, the entity’s system of internal controls, with compliance with laws and regulations

Question 32

Nominating Committee

Answer 32

Responsible for the corporate governance of an organization and selecting the best candidates for each seat on the board

Question 33

Compensation Committee

Answer 33

Responsible for an entity’s overall
compensation philosophy, incentive
structure, policies, and programs

• a key responsibility is establishing
  performance goals for the CEO

Question 34

What Does Management DO?

Answer 34

• Led by the CEO, it is responsible for
  setting/managing/executing strategy
• Keeps the Board of Directors informed on the status of the entity’s operations through monthly meetings and special meetings
• Focuses on the long-term success of the entity/avoids undue emphasis on short-term objectives

Question 35

What Do Shareholders DO?

Answer 35

• Invest in an entity
• Elect representatives
• Have the right to receive the information materials for investment/voting decisions
• long-term stewards (& fiduciaries, a legal term) of their investment