Enterprise Risk. Management

Transcription

1 Enterprise Risk Management Course Instructions and Final Examination Enterprise Risk Management CPE Edition Distributed by The CPE Store Steven M. Bragg The CPE Store 819 Village Square Drive Tomball, TX

2 Enterprise Risk Management Table of Contents Page Course Objectives... 3 Course Instructions... 3 Final Examination... 5

3 COPYRIGHT 2015 The CPE Store ALL RIGHTS RESERVED. No portion of this material may be reprinted, reproduced, transmitted, stored in a retrieval system, or otherwise utilized, in any form or by any means, electronic or mechanical, including photocopying or recording, now existing or hereinafter invented, nor may any part of this course be used for teaching without written permission from the publisher and the author

4 Course Objectives After completing this course, you will be able to: Identify a characteristic of a business that can retain risk Recognize a characteristic of an enterprise risk management (ERM) system Determine who can be included as a member of the risk management committee Spot a common characteristic of a perfect storm event Select an example of an operational hedge Discern what a forward contract can be used for Pinpoint the components of a swap transaction Ascertain the purpose of an interest rate swaption Identify the risk mitigation efforts that can benefit from centralized marketing management Recognize the risk for which mitigation may be possible when testing a product in a distant market Spot a way to guard against the risk of false marketing claims Determine a possible solution when there is a risk of late deliveries Choose a situation in which a bid bond would be used Pinpoint a relevant mitigation strategy for a business at risk of insufficient capacity for meeting customer demand Identify the risk which can be reduced by offering a richer benefits package to employees Discern options available for offsetting a decline in employee morale Spot positions which are exempt according to the Department of Labor Recognize a beneficial factor in the production of error-free financial statements Ascertain what the modeling of multiple scenarios is useful for Determine the type of risk in which internal audits are particularly useful for mitigation Select the type of risk that is presented when data is stored on portable media Pinpoint the risk that maintaining a hot site guards against Choose an example of a mitigation tactic that addresses political risk Identify a valid risk mitigation tactic that addresses alliance risk Recognize situations that may arise when reputation of a business is damaged Determine what a phone tree is used for Ascertain how texting can be an effective form of communication Select a key employee relations topic immediately following a disaster Recognize the purpose of using a deductible in an insurance contract Spot a problem with all-perils coverage Select a unique benefit associated with boiler and machinery insurance Identify costs which should be included in the analysis of an incremental pricing situation Determine the risk implication of dividend payments Pinpoint what must be added when setting the discount rate for a capital budgeting analysis Spot an example of a leading indicator Recognize the reason for comparing cash basis to accrual basis financials Identify the corresponding letter grade for an investment rated as speculative Course Instructions To fully benefit from this course, please follow all of the steps below. 1. Read each chapter in the text to get a good understanding of the material. 2. Answer the study guide problems which appear at the end of each chapter. After answering the problems, compare your answers with the correct answers to ensure that you understand the material. 3. When you feel that you have a good understanding of the material contained in the chapter, answer the questions on the final examination. 4. When you have completed the final examination, record your answers on the answer sheet provided and submit it for grading. A score of 70% or better is required to pass. Please also complete the course evaluation and submit it to us along with your answer sheet. Upon passing you will receive a Certificate of Completion stating that you have successfully completed the course and earned the continuing education credit

5 Prerequisites and Advance Preparation No prerequisites or advance preparation are required for this course. CPE Credit This course is recommended for 10 CPE credits. Final Exam Grading Online: By Mail: By Fax: Our fastest option, with instant results. Simply go to and click the link for online grading. Just follow the instructions from there. When you finish entering your answers, you ll receive instant test results and a Certificate of Completion to print. Mail your test and course evaluation to us. We grade the tests the day we receive them and mail the results and Certificate of Completion to you the following business day. Just fax your answer sheet to If you need us to fax the Certificate of Completion back to you, please provide us with your fax number and write please fax back on your answer sheet. If you don t need the Certificate faxed back, please write no fax needed on your answer sheet. Refunds The CPE Store guarantees your satisfaction. If, for any reason, you are not completely satisfied with your purchase, return it to us unused within 30 days for a prompt refund, no questions asked. (Sorry, but shipping fees are not refundable.) Customer Service The CPE Store holds itself to the highest standards. If we have not met your expectations, something is missing, or you just have a question please contact us at or customerservice@cpestore.com. About Our Courses The CPE Store s courses are developed to satisfy the continuing education requirements of the American Institute of Certified Public Accountants, each state s Board of Accountancy and the National Association of State Boards of Accountancy (NASBA). If your state requires registration of sponsors, our sponsor number will appear on your Certificate of Completion. Our courses are designed to meet the continuing education requirements of accounting professionals. A great deal of care has been taken to ensure that the course material is both interesting and relevant to the practice of accounting. The information presented is, to the best of our knowledge, current and accurate. However, The CPE Store is not in the business of rendering legal, accounting or other professional advice and as such, the material presented in our courses is intended as an overview. If legal advice or other expert assistance is required, the services of a competent professional should be sought

6 Enterprise Risk Management 10-Credit Course Final Examination A score of 70% or higher is required to pass the exam. If you score less than 70% on your first attempt, we will allow you to take the test a second time. Chapter 1 Risk Management Overview 1. What is the result when a business consistently reports earnings that do not vary much from predictions? A. Short selling is a common outcome B. It is more difficult to attract lenders C. The cost of capital tends to be higher D. The stock price tends to stay within a narrow range 2. What is a characteristic of a business that can retain risk? A. A large debt load B. Significant profitability C. A low cash balance D. A start-up business 3. What is a characteristic of an enterprise risk management (ERM) system? A. It tends to maximize the amount of hedging B. It provides more support to silo-based risk management C. It provides a consistent risk management methodology D. It reduces risk across an entire industry 4. Which of the following would not be included as a member of the risk management committee? A. Chief executive officer B. Corporate secretary C. Chief financial officer D. Vice president of strategic planning 5. What type of information does a risk profile categorize? A. It breaks out the losses in the income statement that are attributable to risk B. It identifies the risks to which a company s industry is naturally subjected C. All risks that the Securities and Exchange Commission requires for public reporting D. It lists the main risks that can impact an organization 6. What is a common characteristic of a perfect storm event? A. A general triggering of multiple risks B. A loss triggered by an expected event C. That the loss was triggered by a business activity D. Flooding Chapter 2 Treasury Risk Management 7. What would trigger a large positive score in a credit rating system? A. A long record of stability B. Losses in the past year s financial statements C. An adverse legal judgment D. A bankruptcy filing 8. What is an example of an operational hedge? A. Building reserves B. The alignment of sales and purchases within the same country C. Requiring customers to pay in the company s home currency D. A forward window contract - 5 -

7 Final Exam 9. What can a forward contract be used for? A. Acquire a loan in a foreign currency B. Buy foreign currency on a future date, at a predetermined exchange rate C. Have an option to buy currency on a future date D. Swap currency holdings on a future date 10. Which of the following is not a component of a swap transaction? A. An interest rate reflecting the comparative differences in inflation rates between the two countries B. An interest rate reflecting the comparative differences in interest rates between the two countries C. The initial swap date D. The transaction reversal date 11. In what manner is payment netting used? A. In a gross settlement system B. Primarily between companies using the same currency C. To offset the accounts receivable and payable between two parties D. To avoid income tax issues 12. When is not mitigating interest rate risk a reasonable option? A. All invested funds are in foreign currencies B. A company has a large amount of fixed-rate bonds outstanding C. A company has minimal amounts of debt D. A company has significant investments 13. Which of the following is the designation for an FRA starting in two months and ending in five months? A. 5 2 B. 0 5 C. 3 6 D Of the following, which uses a standardized agreement and is marked to market every day? A. Futures contract B. Forward rate agreement C. Interest rate swap D. Call option 15. Why would an owner use a call option? A. To keep the effective interest rate within a narrow band of possible rates B. Solely to protect against changes in the long-term interest rate C. To protect against rising interest rates D. To protect against declining interest rates 16. What is a characteristic of an interest rate swaption? A. Requires the buyer to enter into an interest rate swap arrangement B. Gives the buyer the option to enter into an interest rate swap arrangement C. Only pays out in a foreign currency D. Contains no counterparty risk Chapter 3 Sales and Marketing Risk Management 17. The centralization of marketing management can assist with the management which of the following risks? A. Brand repositioning risk B. Advertising reduction risk C. Incorrect sales forecasting risk D. Marketing governance failures 18. Testing a product in a distant market is a possible risk mitigation strategy for which of the following? A. False marketing claims B. A brand repositioning C. Increased marketing costs D. Product recalls - 6 -

8 Final Exam 19. What is one way to guard against the risk of false marketing claims? A. Stagger advertising expenditures by period B. Spend more money in high-cost distribution channels C. Be an industry watchdog D. Reposition company products Chapter 4 Supply Chain Risk Management 20. What is a possible solution when there is a risk of late deliveries? A. Buy from nearby suppliers B. Sole source purchases C. Install a just-in-time manufacturing system D. Centralize deliveries with a single trucking firm 21. In which situation would a bid bond be used? A. Goods are being purchased from overseas B. A buyer is contemplating awarding a large construction contract C. A master purchase order governs all major purchases D. Corporate procurement cards are not allowed Chapter 5 Production and Distribution Risk Management 22. Which of the following is a relevant risk mitigation strategy for a business at risk of not having enough capacity to meet customer demand? A. Focus on improving downstream operations B. Switch to an assembly line C. Manage the bottleneck operation D. Purchase more automated equipment Chapter 6 Human Resources Risk Management 23. What can offering a richer benefits package reduce the risk of? A. Ineffective recruiting B. Incorrect hires C. OSHA violations D. Discrimination 24. The management team of an organization is concerned about the decline in morale associated with an imminent downsizing. How can this risk be reduced? A. Swapping time off for benefits B. Adding a human resources department C. Minimizing the impact on the work environment D. Conducting awareness training 25. Which of the following, according to the Department of Labor, is not an exempt position? A. Outside salesperson B. Professional employee C. Administrative employee D. Production line worker Chapter 7 Accounting Risk Management 26. What can be beneficial to the production of error-free financial statements? A. Bottleneck management B. The enforcement of budgeted spending C. Accompanying responsibility reports D. A detailed closing procedure - 7 -

9 Final Exam 27. The modeling of multiple scenarios is useful for what? A. Improving the budget model B. Planning deductions on a tax return C. Estimating the amount of use tax to pay D. Assigning staff to the production of financial statements 28. Internal audits are particularly useful for the mitigation of which risk? A. Due diligence error B. Fraud C. Budgeting error D. Tax return error Chapter 8 Other Information Technology and Systems Risk Management 29. Data stored on portable media presents what type of risk? A. System failure B. Incompatible systems C. Data security D. Changing technology 30. Maintaining a hot site is particularly useful for guarding against which of risk? A. Incompatible systems B. Loss of expertise C. Data security D. Catastrophic damage Chapter 9 Other Risk Management Topics 31. What is an example of a mitigation tactic that addresses political risk? A. To govern a subsidiary from as far away as possible B. To integrate a subsidiary deeply into the activities of local residents C. Avoiding joint ventures D. Bringing in outside workers for in-country factories 32. Which of the following is an example of a valid risk mitigation tactic that addresses alliance risk? A. To gradually escalate the relationship with the other party B. To enter wholeheartedly into information sharing arrangements C. To enforce an ongoing relationship for the longest possible period of time D. To accede to the demands of the other party during the early stages of the relationship 33. Which situation will not arise when the reputation of a business is damaged? A. Increased regulation B. Inability to obtain additional debt C. Lost sales D. An increase in the stock price Chapter 10 Contingency Planning 34. What is a phone tree used for? A. Inform employees of a situation B. Reduce the cost of telecommunications C. Avoid the use of cell towers D. Route emergency information through ham operators 35. How can texting be an effective form of communication? A. It is less expensive than a phone call B. It does not have to be routed through a cell tower C. It uses very little bandwidth D. It can contain massive amounts of information - 8 -

10 Final Exam 36. What is a key employee relations topic immediately following a disaster? A. Disaster drills B. Flexibility in setting employee hours C. The operation of a safe room D. Membership on the emergency response team Chapter 11 Insurance 37. What is the purpose of using a deductible in an insurance contract? A. Shift some of the insurance cost to the customers of the insured B. Ensure that the insured will buy more insurance riders C. Avoid frivolous claims D. Reduce the maximum payout that the insurance carrier must pay 38. What is co-insurance intended to do? A. Ensure that certain events are not covered B. Place a limit on the total amount paid out C. Take the place of a deductible D. Penalize the insured party for under-insuring a property 39. What is a problem with all-perils coverage? A. Its potentially excessive cost B. Its specific exclusion of numerous perils C. That it cannot be applied to a corporate parent D. That coverage cannot extend beyond a one-year period 40. What is a unique benefit associated with boiler and machinery insurance? A. The insurer allows monthly payments B. The insurer provides safety inspections C. The insurer may reduce the amount billed in exchange for an equity stake D. The insurer can assist the insured in buying new boilers 41. Under business interruption insurance, rent expense is only likely to be reimbursed in which of the following situations? A. The facility is located in a state that allows business interruption insurance B. The rent applies to a facility that does not store inventory C. There is no rent abatement clause in the rent agreement D. The insured party houses a pre-determined maximum number of employees on the premises Chapter 12 Risk in Financial Analysis 42. Which costs should not be included in the analysis of an incremental pricing situation? A. Hedging costs B. Product scrap costs C. Direct material costs D. Manufacturing overhead costs 43. What is the risk implication of dividend payments? A. Investors are going to be taxed on the dividends, so it is a poor use of cash B. The cash could be better employed to acquire more fixed assets C. The cash may be needed to support operations D. Not issuing a dividend can reduce the cost of insurance 44. What must be added to the rate when setting the discount rate for a capital budgeting analysis? A. An adjustment for unexpected risk B. An adjustment to reflect the variability of the cost of capital C. The difference between the risk-free rate and the prime rate D. A blanket penalty based on the risk of the business unit - 9 -

11 Final Exam 45. What is the concept of R&D waste meant to reflect? A. The total research and development cost of a business B. The amount of project failure being experienced C. Any negative cost-benefit associated with the R&D effort D. The amount of any negative net present value on projects that are accepted Chapter 13 Risk Measurement and Reports 46. An incidents report is designed to bring which of the following to the attention of management? A. Insured incidents B. Employee complaints C. Events that could lose money in the future D. Activities that have lost a notable amount of money 47. What is an example of a leading indicator? A. The unemployment rate B. The S&P 500 stock index C. Changes in foreign exchange rates D. Employee turnover 48. What is the reason for comparing cash basis to accrual basis financials? A. Detect financial statement manipulation B. Present a case for switching to cash basis accounting C. Detect consolidation errors D. Detect inadequate expense accruals 49. An investment rated by one of the credit services as speculative might have what rating? A. Baa1 B. BBB- C. Baa3 D. BB+ 50. What can a report that matches customer credit limits to their actual usage be considered? A. A leading indicator of potential future defaults B. An information source to calculate bad debt expense C. A way to determine the collection efficiency of the accounting department D. A way to determine how well the credit department is assigning credit levels Thank you for taking our course. We hope you enjoyed it

12 Enterprise Risk Management Course Number: B Qualifies for 10 hours of CPE credit If you are mailing or faxing your test to us for grading, please fill in Member ID and Validation number. Name as it should appear on your Certificate: Where should we send your results? License State(s): License Number: Date Course Completed: * Answer each question A, B, C, or D, as appropriate. * Be sure you are answering questions from the Final Examination, not from the Study Guide * For instant online grading, go to and click the link for Online Services Page 1 of 1

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