Module 3 - Quiz 2 (pt2)

Question 1

Does ERM replace Internal Controls?

Answer 1

No

Question 2

COSO ERM

Answer 2

Enterprise-wide and brings in the consideration of
external and broader global risks

Question 3

COSO Internal Controls

Answer 3

More process and internal
focused (e.g., financial reporting)

Question 4

Both COSO frameworks …

Answer 4

• are distinct and complementary
• have components and principles

Question 5

Aspects of internal control common to ERM are

Answer 5

• not repeated
• developed further in ERM framework

Question 6

ERM: Criteria for Assessing ERM Practices

Answer 6

✔ Components & Principles are present and functioning
✔ Components are operating together in an integrated manner
✔ The internal controls necessary to put into effect relevant principles are present and functioning

Question 7

Principle 1

Answer 7

Board Exercises Risk Oversight

Question 8

Board has primary responsibility for

Answer 8

risk oversight

(Some Boards retain direct ownership; others delegate to a Board committee )

Question 9

Management has primary responsibility for

Answer 9

day-to-day risk management

Question 10

Oversight includes the board interacts how?

Answer 10

• Asking the right questions to challenge management about strategy, business objectives, and performance targets
• Interacting with stakeholders and presenting alternative views / action plans

Question 11

Oversight requires that the Board understands

Answer 11

• Understands the industry and entity’s strategy
• Is informed on relevant issues
• Remain current as the internal and external environment change
• Ensure that it has appropriate skillsets, expertise, and composition to be effective as the business environment changes

Question 12

Examples of impaired Board independence

Answer 12

• Financial interest in the entity
• Employee-employer relationship with the entity
• Business relationship with the entity (e.g., supplier, contractor)

Question 13

How Board should deal with Organizational Bias

Answer 13

Awareness of potential organization biases and challenge management to overcome them

Question 14

Factors that impact Board’s effectiveness

Answer 14

• Independence
• Suitability of ERM
• Organizational Bias

Question 15

Suitability of ERM

Answer 15

Determine if the ERM program is appropriately designed to enhance value

Question 16

Independence (in regard to the Board)

Answer 16

Ability to be objective

(serves as check and balance on management; ensure best interests of stakeholders are served)

Question 17

Principle 2

Answer 17

Establishes Operating Structures

Question 18

What is the operating structure?

Answer 18

Defines how the entity organizes and carries out day-to-day operations

• it is aligned with legal structure (how an entity operates) and the management structure (who is responsible for what)

Question 19

The purpose of Establishing Operating Structures

Answer 19

• To carry out the entity’s strategy and business objectives
• Clearly define authority, reporting lines, roles and responsibilities
• Different operating structures (centralized vs decentralized) may result in different risk profiles
• Management is responsible for developing an entity’s operating structure
  (the Board delegates authority to management)
• Management regularly evaluates the operating structure in response to changing business context

Question 20

Principle 3

Answer 20

Defines Desired Culture

Question 21

Culture directly impacts

Answer 21

• Risk Identification / Assessment process
• Risk Response
• Risk Management

Question 22

Culture reflects

Answer 22

core values and drives expected day-to-day behaviors and decisions

Question 23

Who is responsible for defining and creating the desired culture?

Answer 23

Board and the management

Question 24

Well-defined culture leads to

Answer 24

shared understanding of acceptable risk decisions > risk responses within defined risk appetite > achievement of strategy & business objectives

Question 25

Culture is influenced by

Answer 25

• Investors expectations
• Reward system
• Level and quality of employee interactions
• Policies
• Regulatory requirements
• Customer expectations

Question 26

Principle 4

Answer 26

Commitment to Core Values

Question 27

What are Core Values

Answer 27

communicated from the “top”, are the “tone” of the organization and are reflected in actions and decisions

Question 28

What is key for Core Values

Answer 28

Consistency is key; not always easy

Question 29

What does consistency signal

Answer 29

Consistency in the “tone” of the organization signals confidence to stakeholders that entity adheres to its core values

Question 30

Principle 5

Answer 30

Capable Individuals

Question 31

Excess pressure will

Answer 31

demotivate employees and could lead to fraud

Question 32

Capable Individuals

Answer 32

Management, with Board oversight, defines human capital needs necessary to carry out strategy and business objectives

Question 33

Human Resources function supports management in

Answer 33

• Attract, train, mentor, evaluate & retain employees
• Identify roles critical to the achievement of strategy
• Reward performance
• Tool to enforce desirable behaviors
• Rebalance excess pressures