Risk Management and Residual Risk

Play an AI-generated podcast conversation about this lesson

What is residual risk?

The initial level of risk before management takes action
The level of risk that remains after management has taken action to mitigate the risk (correct)
The risk that is impossible to prevent
The risk that is inherent in all business activities

Which two factors are considered when assessing residual risk?

Loss frequency or probability and loss severity (correct)
Financial stability and market trends
Employee satisfaction and office location
Customer feedback and product quality

What does a Risk Map visually depict?

Relative risks based on their expected frequency and expected loss (correct)
Market share of competitors
Company profits over time
Employee performance evaluations

What does 'Maximum probable loss' refer to?

The average loss over several years (B) Signup and view all the answers

Why should businesses reserve capital for unexpected loss?

To cover losses beyond what was budgeted for expected losses (D) Signup and view all the answers

What is the significance of the 'maximum possible loss'?

It is the largest loss that can occur under extreme circumstances (C) Signup and view all the answers

What is the main purpose of risk assessment in the COSO Model?

To manage risks efficiently (C) Signup and view all the answers

Which of the following is NOT a part of control activities in the COSO Model?

Capturing and exchanging information (A) Signup and view all the answers

How does the COSO Model suggest addressing risks to an organization's objectives?

Through ongoing monitoring activities (D) Signup and view all the answers

Which principle is NOT associated with Information and Communication under the COSO Model?

Exercising oversight of internal control performance (B) Signup and view all the answers

What is the role of the board of directors in internal control according to the COSO Model?

Independence from management (C) Signup and view all the answers

How does the COSO Model advocate for managing risks effectively?

By establishing appropriate authorities and responsibilities (C) Signup and view all the answers

What does inherent risk refer to in the context of a company?

The risk that occurs naturally in the company's activities (C) Signup and view all the answers

Which of the following best describes inherent risk?

Natural risk in company activities (B) Signup and view all the answers

When does inherent risk occur within a company?

Before management takes any action against the risk (B) Signup and view all the answers

Which statement best defines inherent risk?

Risk inherent in company processes before any action is taken by management (C) Signup and view all the answers

What characterizes inherent risk within a company?

It is the natural level of risk present before management interventions (A) Signup and view all the answers

Which factor contributes to inherent risk in a company?

The level of risk present before management actions (A) Signup and view all the answers