CMA Exam Lesson + Sample Questions – Intro to Risk and Risk Management

In this installment of our free video lecture series, we’re focusing on a common CMA Exam topic: Risk.

Introduction to Risk & Risk Management

All organizations face the risk of negative events. CMA candidates must understand the variables of risk and how organizations can manage the possibility of loss. This free video lecture highlights some of the key elements of risk and how organizations should understand and manage the key elements of risk within their firms.

This short lesson features Dallon Christensen, CMA, CPA/CITP, who’s the divisional comptroller for Olympic Steel.

Enjoy.

Sample Questions

OK, here’s your chance to test what you know about risk and risk management. Below are three retired ICMA questions from past CMA Exams. Read each question carefully and note your answers. When you’re done, you can scroll down (don’t cheat!) to the bottom of this blog post to check how you did.

Good luck.

1) When assessing a company’s internal control structure policies and procedures, the primary consideration is whether they:

A. affect the financial statement assertions.
B. reflect management’s philosophy and operating style.
C. prevent management override.
D. relate to the control environment. 

2) Internal controls are designed to provide reasonable assurance of achieving a corporation’s control objectives. Several factors may present inherent limitations to otherwise well-designed policies and procedures. Which one of the following is not a factor that limits the effectiveness of internal controls?

A. Management override.
B. Segregation of duties.
C. Carelessness.
D. Collusion.

3) All of the following are potential benefits of risk management EXCEPT:

A. Reduced cost of capital.
B. More effective resource allocations.
C. Increased understanding of entity objectives.
D. Decreased inherent risk.

The Answers

1) A.  affect the financial statement assertions.
The primary consideration when assessing a company’s internal control structure policies and procedures is whether they affect the financial statement assertions.

2) B.  Segregation of duties.
Certain human factors or exceptions may present inherent limitations to otherwise well-designed and well-supported control policies and procedures. The major ones are management override of controls and collusion between employees and between employees and outsiders. Other inherent weaknesses are carelessness, misunderstandings, and the cost/benefit nature of controls.

3) D.  Decreased inherent risk.
Inherent risk is the risk that exists before any controls are implemented to mitigate such risk. It is the probability of a threat occurring.