CPA Business Environment and Concepts (BEC) : Risk Management

Study concepts, example questions & explanations for CPA Business Environment and Concepts (BEC)

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Example Questions

Example Question #1 : Risk Management

Probability (risk) analysis is:

Possible Answers:

An extension of sensitivity analysis

Used only for situations in which the summation of probability weights is greater than one

Incompatible with sensitivity analysis

Used only for situations involving five or fewer possible outcomes

Correct answer:

An extension of sensitivity analysis

Explanation:

Probability analysis is an extension of sensitivity analysis.

Example Question #2 : Risk Management

Which of the following factors is inherent in a firm's operations if it utilizes only equity financing?

Possible Answers:

Interest rate risk

Business risk

Financial risk

Marginal risk

Correct answer:

Business risk

Explanation:

Business risk represents the risk associated with the unique circumstances of a particular company, as they might affect the shareholder value of that company.

Example Question #14 : Operations Management: Planning Techniques

If an investor's certainty equivalent is greater than the expected value of an investment alternative, the investor is said to be:

Possible Answers:

Risk seeking

Cautious

Risk indifferent

Risk averse

Correct answer:

Risk seeking

Explanation:

If an investor's certainty equivalent is greater than the expected value of an investment alternative, the investor is said to be risk seeking.

Example Question #15 : Operations Management: Planning Techniques

The mission and vision of an organization most closely relate with its:

Possible Answers:

Capabilities

Culture

Practices

Strategy

Correct answer:

Strategy

Explanation:

Mission and vision are keywords associated with a firm's strategy.

Example Question #16 : Operations Management: Planning Techniques

The performance component of COSO's ERM framework is supported by which of the following principles?

Possible Answers:

Defines risk appetite

Analyzes business context

Establishes operating structure

Identifies risk

Correct answer:

Identifies risk

Explanation:

Identifies risk is included under the umbrella of performance.

Example Question #6 : Risk Management

Proper risk management includes all of the following except:

Possible Answers:

Well balanced risk tolerance

Well compensated employees

Secure levels of safety stock

Ensuring proper internal controls

Correct answer:

Well compensated employees

Explanation:

While choosing to compensate workers additionally is a good faith action, it does not assist in proper risk management.

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