SBL Risk

ACCA · Strategic Professional · 8 questions

Name: ____________________ Date: ____________

Risk is best defined as:
- A The certainty of loss
- B The chance of an outcome differing from what was expected
- C The cost of insurance
- D A fall in share price
A company decides not to enter a new market because the political risk is too high. This is an example of risk:
- A Avoidance
- B Reduction
- C Acceptance
- D Transfer
Buying insurance against the loss of goods in transit is an example of risk:
- A Transfer
- B Acceptance
- C Avoidance
- D Exploitation
The expected loss of a risk with a 5 percent chance of causing a $2,000,000 loss is:
- A $100,000
- B $40,000
- C $2,000,000
- D $400,000
A risk register usually records for each risk its:
- A The share price effect only
- B The auditor's opinion
- C Only the cost of the response
- D Likelihood, impact, owner and the response
Which statement about the three lines model is correct?
- A Risk is the responsibility of the external auditor
- B The board has no part in risk oversight
- C Operational management owns risk, and risk and compliance functions oversee and advise it
- D Internal audit is responsible for managing all risks
A risk that a company will fail to meet its obligations when a customer does not pay is:
- A Operational risk
- B Credit risk
- C Liquidity risk
- D Market risk
A risk appetite statement is useful mainly because it:
- A Tells managers how much risk the board is willing to take in pursuit of objectives
- B Sets the level of insurance premiums
- C Replaces the audit committee
- D Removes the need for controls

Answer key

1. B, 2. A, 3. A, 4. A, 5. D, 6. C, 7. B, 8. A

Risk is uncertainty about outcomes and includes both threats and opportunities.
Avoidance means choosing not to undertake the activity that creates the risk.
The financial effect of the risk is passed to the insurer.
Expected loss = probability x impact = 0.05 x 2,000,000 = $100,000.
A register supports management by recording the assessment of each risk, who is responsible and what is done.
Management is the first line, oversight functions are the second line and internal audit is independent assurance in the third.
Credit risk is the risk of loss from counterparties failing to pay.
Risk appetite guides decisions and the setting of limits.