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Questions and Answers
Which of the following is NOT a limitation of internal control?
What is risk?
The possibility of an event occurring that will have an impact on the achievement of objectives.
Define risk management.
A process to identify, assess, manage, and control potential events or situations to provide reasonable assurance regarding the achievement of the organization's objectives.
What is risk assessment?
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Match the following risk assessment components with their descriptions:
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Risk treatment involves selecting options for addressing risks.
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What are some internal and external constraints in an organization?
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What does COSO stand for?
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Which of the following are limitations of internal control? (Select all that apply)
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Define risk.
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What is risk management?
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What is risk assessment?
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What is the purpose of identifying risks in risk assessment?
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List some internal and external constraints in an organization.
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What does a risk portfolio consist of?
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What is a risk matrix?
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Which of the following are options for risk treatment? (Select all that apply)
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Study Notes
COSO
- Established to study the causes of fraudulent financial reporting
Internal Control Limitations
- Collusion
- Management override
- Cost-benefit analysis
- Human error which includes mistakes, lapses in judgment, carelessness, distraction, or fatigue
Risk Definition
- The possibility of an event occurring that will impact the achievement of objectives.
- Measured in terms of impact and likelihood.
Risk Management Definition
- A process of identifying, assessing, managing, and controlling potential events or situations to provide reasonable assurance regarding the achievement of organizational objectives.
Risk Assessment
- Identification of Risks: find, recognize and describe risks that might help or prevent an organization from achieving its objectives.
- Measurement of Risks: estimate the significance or impact, assess the likelihood of occurrence.
Risk Portfolio
- A list or inventory of risks.
Risk Matrix
- A common tool to record and analyze objectives, risks, and controls.
- Useful in conducting risk-based audits.
Operational Risk Types
- Accountable To is the team/individual in charge
- Report To is the team/individual reporting to
- Appoint & Monitor is the team/individual appointing and monitoring the operations.
Internal and External Constraints in an Organization:
- Equipment: the types and manners of usage
- People: lack of skilled and motivated workers
- Policies: written and unwritten policies.
Risk Management
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Evaluation of Risks: Determine where additional action is required and can lead to a decision to:
- Do nothing further.
- Consider risk treatment options.
- Undertake further analysis to better understand the risk.
- Maintain existing controls.
- Reconsider objectives.
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Risk Responses: Select and implement options for addressing risk:
- Formulate and select risk treatment options.
- Plan and implement risk treatment.
- Assess effectiveness of that risk treatment.
- Decide whether the remaining risk is acceptable.
- If not acceptable, take further treatment.
COSO
- Established to research causes of fraudulent financial reporting
Limitations of Internal Control
- Collusion
- Management Override
- Cost-benefit analysis
- Human error: mistakes, lapses in judgment, carelessness, distraction, fatigue
Risk
- The possibility of an event occurring that will impact the achievement of objectives
- Measured in terms of impact and likelihood
Risk Management
- A process to identify, assess, manage, and control potential events or situations
- Provides reasonable assurance regarding the achievement of organizational objectives
Risk Assessment
- A process to identify, measure, and analyze risks relevant to a program or process.
- Focuses on impact and likelihood
- Involves a systematic, iterative process with both quantitative and qualitative input
- Dependent on the timeframe of the review
Risk Assessment: Identification of Risks
- Purpose: To find, recognize, and describe risks that might help or prevent an organization from achieving its objectives
Risk Assessment: Measurement of Risks
- Estimate the significance or impact of a risk
- Assess the likelihood of occurrence
- Requires judgment and requires analysis of both likelihood and impact
Risk Assessment: Risk Portfolio
- A list or inventory of risks
Risk Assessment: The Risk Matrix
- A tool to record and analyze objectives, risks, and controls in a program or process
- Essential for conducting risk-based audits
- Layout varies by organization
Risk Management: Evaluation of Risks
- Identifies risks requiring further action
- Results in a decision to:
- Do nothing further
- Consider risk treatment options
- Undertake further analysis to better understand the risk
- Maintain existing controls
- Reconsider objectives
Risk Management: Risk Responses
- Risk treatment - select and implement options for addressing risk by:
- Formulating and selecting risk treatment options
- Planning and implementing risk treatment
- Assessing the effectiveness of risk treatment
- Deciding if remaining risk is acceptable
- Taking further treatment if the risk is not acceptable
Internal and External Constraints in Organizations
- Equipment – types and manner of usage
- People – lack of skilled and motivated workers
- Policies – written and unwritten policies
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Description
Test your understanding of the COSO framework and its implications for risk management and internal controls. This quiz covers topics such as risk assessment, limitations of internal controls, and the definition of risk management. Dive into the complexities of managing risks effectively in organizations.
