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Internal Control System

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Hannah Rose Navaja
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3 views

Internal Control System

Uploaded by

Hannah Rose Navaja
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Hannah Rose S.

Navaja BSMA-2 ACCTG 401(3049) 02/05/25

1) All of the following are potential benefits of risk management EXCЕРТ:


A.​ Reduced cost of capital.
B.​ More effective resource allocations.
C.​ Increased understanding of entity objectives.
D.​ Decreased inherent risk.
EXPLANATION: While risk management can help mitigate the impact of risks, it cannot inherently decrease the level
of risk that naturally exists within an organization; that is considered "inherent risk". All the other options - reduced
cost of capital, better resource allocation, and increased understanding of entity objectives - are potential benefits
of effective risk management.

2) Traditionally, risk has been defined as:


A.​ Any situation in which the probability of loss is one.
B.​ Any situation in which the probability of loss is zero.
C.​ Uncertainty concerning the occurrence of loss.
D.​ The probability of a loss occurring.
EXPLANATION: Risk is not just about the probability of a loss happening, but also the uncertainty surrounding
whether or not a loss will occur.

3) Which of these is a response to positive risk?


A.​ Mitigate
B.​ Transfer
C.​ Exploit
D.​ Share
EXPLANATION: When dealing with a positive risk (opportunity), "exploit" means actively taking steps to ensure the
positive outcome happens and maximize its potential benefits.

4) A risk where the probability of happening is very high and the severity of loss is high, should be:
A.​ ACCEPTED
B.​ TRANSFERRED
C.​ AVOIDED
D.​ EXPLOITED
EXPLANATION: When a risk has both a high likelihood of occurrence and a significant potential impact, the best
strategy is to actively avoid it by eliminating the activity or situation that creates the risk altogether.

5) Which of these are ways to transfer risk?


A.​ Adding more controls
B.​ Insurance
C.​ Avoiding
D.​ Outsourcing
EXPLANATION: By outsourcing a task to another company, you essentially transfer the risk associated with that task
to them, such as hiring an IT company to manage your data security.
Hannah Rose S. Navaja BSMA-2 ACCTG 401(3049) 02/05/25

6) You are shifting your plant to an earthquake-prone location. You get plant foundations designed to absorb
earthquake shocks. What risk strategy are you adopting?
A.​ Risk Mitigation
B.​ Risk Transfer
C.​ Risk Avoidance
D.​ Risk Acceptance
EXPLANATION: Risk mitigation is a strategy that involves taking steps to reduce the potential damage from a risk.
It's a key part of the risk management process.

7) What is risk management?


A.​ The deliberate or real-time approach to control risks.
B.​ The ability to manage risks and implement controls necessary to accomplish the objectives.
C.​ The process of identifying, assessing, and controlling risks arising from operational factors and making
decisions that balance risk cost with organizational benefits.
D.​ None of the above.
EXPLANATION: Risk management involves actively identifying potential risks, evaluating their severity and
likelihood, and then taking steps to mitigate or avoid them, aiming to balance the cost of managing risks with the
potential benefits to the organization.

8) Which one is not a principle of risk management (RM)?


A.​ Integrate RM into all phases of operations.
B.​ Only use RM while on duty.
C.​ Make risk decisions at the appropriate level.
D.​ Accept no unnecessary risk.
EXPLANATION: Risk management (RM) is a continuous process that applies to both on-duty and off-duty situations.
Limiting RM to only on-duty activities contradicts the core principle that risk awareness should be integrated into
all aspects of decision-making.

9) How do we approach risk management?


A.​ Through common sense.
B.​ Through proper planning and execution.
C.​ Through deliberate or real-time approach.
D.​ None of the above.
EXPLANATION: Risk management is not simply about using common sense, but rather a structured process that
involves identifying, analyzing, evaluating, and mitigating potential risks through careful planning and execution of
strategies to address them.

10) Which of these is not a source of risk?


A.​ Political risk
B.​ Technology risk
C.​ Environmental risk
D.​ Functional risk
EXPLANATION: While political risk, technology risk, and environmental risk are all considered sources of potential
risks in various contexts, "functional risk" is not a widely recognized category of risk on its own. "Functional risk"
usually refers to the potential for a system or process to fail due to its design or operation, which is typically
considered a part of a broader category like technology risk or operational risk.

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