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ARM 400 Practice Exams - all chapters Sociology
Questions & Answers
According to the law of large numbers, as the number of exposure units insured increases, - ANS-The relative accuracy of predictions about future losses increases
The fundamental purpose of a risk management framework is to - ANS-Integrate risk management throughout the organization
Which one of the following provides a measure of the maximum potential damage associated with an occurrence? - ANS-Exposure
Aligning risks with the organization's risk appetite defines - ANS-Tolerable uncertainty
An organization must meet the standard of care that it owes to others in order to ensure that - ANS- Legal obligations are satisfied
Julian was having a conversation with Tania, one of his employees. At this point, Julian said, "What I hear you say is that you would like to take on more responsibility. Is that correct?" Which one of the following elements of active listening was Julian illustrating? - ANS-Response
During the past year, International Toys has undertaken four capital projects. The company has renovated and refurbished one of its aging warehouse buildings. It has purchased the most recent version of its current order processing computer software. It has added two trucks to its fleet of delivery vehicles. Lastly, it has purchased a new production machine that will allow it to launch a new product line. Which one of the following company projects is the most speculative risk? - ANS-The new production machine
Encouraging the expression of feelings as well as facts and following up with employees on the problems they report are two ways that managers and supervisors can - ANS-Cultivate two-way communication
Which one of the following risk management objectives is critical for a manufacturer seeking new capital from investors, stockholders, and creditors? - ANS-Reduce the deterrent effects of hazard risks
Which one of the following is a tool that can be used by fraud investigators to compare documents and analyze notes? - ANS-Text mining
For an organization, a key performance indicator (KPI) measures the performance of a specific activity at a predetermined level or amount. Which one of the following is an example of a KRI based on a ratio? - ANS-Inventory turnover
Before speaking with a group or individual, the speaker should think about what he or she wants the other person(s) to do as a result of the conversation. Which one of the following steps in the communication process does the speaker complete by doing this? - ANS-Set a clear communication objective
Mid-State Packing Company, a meat processing company, is the largest private sector employer in Metro City. First National Bank of Metro City loans money to Mid-State Packaging Company and to many of the employees of Mid-State. The problem with First National Bank of Metro City loaning money to both the business and many employees of the business is that - ANS-Loan defaults are likely to be highly correlated
Which one of the following statements is true with regard to preventative analytics? - ANS-Preventative analytics uses smart products and data analytics to identify root loss causes and their implications.
The emerging technologies applied to risk assessment and control link the physical domain to the virtual domain. Together, these domains linked by the emerging technologies create a - ANS-connected ecosystem
In addition to metal detector, many airports have installed a second type of scanning technology for baggage and cargo. The checked bags and cargo pass through a portal with scanners programmed to detect and test for explosive trace fumes. These scanners, which detect explosives based on air samples, are an example of what type of sensor used for risk assessment and control? - ANS-Biochemical sensors
Which one of the following statements is correct regarding an organizations code of ethics? - ANS-The code of ethics should include principles and concepts that are dynamic enough to remain relevant in a rapidly changing business environment
One advantage that a national organization would derive from creating risk centers is that it - ANS- Allows for participation by operational managers who may contribute to the risk analysis
An organization evaluates key stakeholders attitude toward risk in order to - ANS-Understand what risks are acceptable and to develop an effective enterprise-wide risk management program
Which one of the following measures the progress an organization has made toward attaining it's goals within a specific amount of time? - ANS-Key performance indicator
One of the strategic objectives for Cromley Insurance Group is customer satisfaction. Which one of the following is a critical success factor (CSF) that would help refine this strategic objective? - ANS-High customer retention
Which one of the following terms refers to information used as a basis for measuring the significance of a risk? - ANS-Risk criteria
Key risk indicators (KRIs) can be established for various levels within an organization. Which one of the following levels of an organization usually has the most detailed KRIs? - ANS-Department level
Which one of the following statements is true regarding the business process management (BPM) life cycle model? - ANS-The model is driven by the collaboration of human and technological input
The service representatives for Tauton Insurance will be eligible for a bonus only if the customer retention rate is increased by 5%. This is an example of which of the following standards? - ANS-A corrective measure linked with an identified tolerance level
Carbon manufacturing company just hired a new chief risk officer and one of his first tasks was to recommend updated key risk indicators to the chief executive officer. The CEO was especially interested in KRIs measuring the company's profitability. One area of measurement that the new CRO might want to use is - ANS-Aged accounts receivable
Which one of the following answers the question, "What shows we are a success?" - ANS-Key performance indicator
Key risk indicators (KRIs) help organizations identify issues that can lead to losses. Effective KRIs are based on a company's - ANS-Strategic objectives
An organization's goals and objectives are met by establishing and attaining measurable standards for the many activities it pursues. Which of the following statements is correct with respect to those standards? - ANS-For each key performance indicator (KPI), there is a tolerance level for how much deviation from the standard established in the KPI will be acceptable
An organization has established a key performance indicator to "reduce employee injuries by 6%." Which one of the following would indicate a low risk tolerance for this KPI? - ANS-Reduce employee injuries by 5 to 6%
Which one of the following is a main characteristic of effective key risk indicators (KRIs)? - ANS-They are based on quantifiable information
The fees paid to external auditors to verify the corporation's financial statements are an example of - ANS-A monitoring cost
Humongous Corporation has announced that it seeks strategic growth through acquisition. It is carefully eyeing a smaller company, Tiny Corporation. Tiny Corporation is aware of such scrutiny and interest. Within Tiny Corporation, a market force that can help align interests of its corporate decision makers and shareholders is which one of the following? - ANS-Takeover threats
Which one of the following statements is true regarding separation of ownership and control in corporations? - ANS-The incentive for managers and non-management board members to pursue their own interests at the expense of shareholders gives rise to agency costs
Some best practices models call for the formation of a risk committee with a risk management focus at the organization's executive management level. Which one of the following statements best describes one of the responsibilities of an executive-level risk committee? - ANS-To approve the organization's risk management strategies, including their design and implementation
The managers and executives at Oakes Corporation feel pressure to improve quarterly financial results because they have become the laughingstock of their competitive niche. They wish to change this and restore the excellent light in which competitors once viewed them. Such concerns of the past of Oakes leadership reflect concern for - ANS-Management reputation
All of the following are mechanisms to align manager and shareholder interests, EXCEPT - ANS- Expansion and growth
As a category of agency costs, bonding costs include - ANS-Stock options and restricted stock
One example of a bonding cost, as it relates to separation of ownership and control in a corporation, is a manager's - ANS-Willingness to accept non-cash compensation that links the manager's compensation to the corporation's performance
Corporate governance is defined as - ANS-The mechanisms and procedures that determine how corporations are run
The fees paid to external auditors to verify the corporations financial statements are an example of - ANS-A monitoring cost
Though various parties incur costs in monitoring corporate decision-makers, most monitoring costs are shouldered by which one of the following? - ANS-Shareholders
The data quality principle of reasonability refers to - ANS-The materiality or relevance of data
Which one of the following statements is correct regarding the personal data and privacy positions of the European Union (EU) and the U.S.? - ANS-The EU has one all-encompassing data protection framework and the U.S. has several more targeted privacy laws
Which one of the following is a basic process in any data security program? - ANS-Develop and enforce stronger password protocols.
Which one of the following is a data governance committee (DGC) responsibility? - ANS-A data governance committee ensures there are few conflicts or redundancies in data standards and practices
A data governance committee (DGC) - ANS-Is cross-functional
Which one of the following defines the duties of a data steward? - ANS-A data steward is an experienced business analyst
In terms of data governance, IT employees hold the role of - ANS-Data custodians
To gain a competitive advantage, maintain profitability, and satisfy customers an organization must - ANS-Be able to trust its data.
Which one of the following is an example of a data governance tool? - ANS-external policy
Which one of the following data governance tools allows the data governance committee to look at data relationships and interdependencies across the organization? - ANS-Enterprise data models
A risk-based auditing approach is deemed to be a top-down approach because - ANS-It involves identifying and analyzing material risks to the achievement of the organization's objectives and then determining how the risks should be managed
Preventative controls assist the overall control environment of an organization by - ANS-Reducing risk of unauthorized actions
An independent auditor has been given the task of evaluating internal controls at Westside. The auditor has determined that Westside's board of directors has endorsed a framework requiring management to have documented internal reporting controls to ensure efficient operations, accuracy of financial statements, and compliance with regulations. The framework is applied at the entity and divisional levels, but not at the operating unit or functional levels. The program is new so it has not yet been monitored. The auditor is likely to report that - ANS-The selected method does not align with the Committee of Sponsoring Organizations of the Treadway Commission's (COSO) Internal Control - Integrated Framework because it must also be applied at the operating unit and functional levels and it must be monitored.
Which one of the following best explains how the role of the internal auditor changed with the passage of the Sarbanes-Oxley Act of 2002? - ANS-The internal auditor must adopt a stakeholder orientation by anticipating, monitoring, and assessing business and operational risk
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) describes internal control as consisting of five essential components, one of which is risk assessment. This component - ANS-Considers management's efforts to identify and analyze risks relevant to achieving predetermined objectives
Which one of the following best describes how internal audit supports enterprise risk management (ERM)? - ANS-ERM implements risk management activities and internal audit assesses the results
Which one of the following is true regarding internal audit involvement with enterprise risk management (ERM) efforts? - ANS-Internal audit is increasingly asked to evaluate organizational risks, including strategic, financial and hazard risks
Which one of the following best describes how internal audit compliments a risk management initiative?
- ANS-Risk managers identify, assess and prioritize risks. Internal audit develops a risk-based auditing plan that addresses material risks to an organization
Which one of the following best describes why the Institute for Internal Auditors (IIA) has designed standards assessing the need for internal audit to evaluate the effectiveness of risk management? - ANS- Audits are conducted under diverse legal and cultural environments. Requiring an auditor to validate particular points ensures that auditors and their activities meet their responsibilities
Colossal Casualty Insurance Company decided to conduct an internal audit of the company's operations. As part of the internal audit, several fictitious claims were submitted to the claims department to see if the claims would be approved and paid m. Which one of the COSO components of internal control was examined by this internal audit test? - ANS-Control environment
The auditing standard no. 5 calls for a specific fraud assessment because - ANS-The failure to prevent or detect fraudulent misstatements is higher than the risk of failing to prevent or detect other types of errors
The importance of strong control environments with independent oversight have become increasingly important - ANS-As organizations become more complex
Many banks are using technology to search for and detect cyber-security threats locally and in the cloud. This application of technology, in which machines learn from humans, illustrates the use of - ANS- Artificial intelligence
It is necessary to define functions that should be performed by internal audit rather than the enterprise risk management (ERM) team because - ANS-Clarification of functions helps avoid redundancy and foster a strong working relationship
COSO's Internal Control - Integrated Framework provides - ANS-Common standards designed to increase effectiveness and efficiency of operations and reliability of financial reporting while ensuring compliance with applicable laws and regulations
uncertainty of its operating performance. The standard that Be-Ne-Lux failed to meet is - ANS-Risk- based capital
Which one of the following is an example of a compliance requirement that is internal and mandatory? - ANS-Requiring all employees working in the foundry to wear hearing protection
All of the following are true regarding the Federal Sentencing Guidelines, EXCEPT - ANS-They are mandatory
The Federal Sentencing Guidelines require a senior manager to have responsibility for the organization's entire compliance program. The individual selected is typically from which one of the following functions of the organization? - ANS-Internal audit
Sims Cinnamon Rolls and Donuts creates confectionery masterpieces for business conventions. Knowing how much a warm cinnamon roll or fresh donut means to a conventioneer just arriving from out of town, Sims' decides to implement a standard that 100% of its orders be delivered 60 minutes before the start of each convention. This is an example of which of the following kinds of compliance requirements? - ANS-Internal and voluntary
Which one of the following plans calls for action before, during, and after catastrophes with a focus on saving lives, reducing property losses, and conserving resources during recovery? - ANS-Crisis management plan
Mathias Manufacturing suffered a major business disruption due to a fire at one of its locations. Management has set up a center of operations with the business intelligence information available to test various production scenarios. Mathias is in which one of the following stages of strategic redeployment planning? - ANS-Alternative marketing stage
Which one of the following stages of a redeployment plan is designed to protect people, physical assets, and reputation? - ANS-Emergency stage
The focus of risk quadrants is different from the focus of risk classifications in general. While the classifications of risk focus on some aspect of the risk itself, the four quadrants of risk focus on - ANS- The source of risk and who has traditionally managed it
Regarding diversifiable and nondiversifiable risk, which one of the following statements is accurate? - ANS-Systemic risks are generally nondiversifiable.
Business Process Management (BPM) - ANS-A systematic, iterative plan to analyze and improve business processes through life-cycle phases to achieve long-term goals and client satisfaction.
T or F? Business process management is successfully completed when a process (or process improvement) is deemed to be a total success - ANS-False. Regardless of whether a process is a total success, the five-step BPM life cycle is not complete. In fact, one of the major benefits of the BPM life cycle is that it promotes continual improvement
Five steps of BPM Life Cycle - ANS-1) Design/redesign processes
Model scenarios
Execute process changes
Monitor results
Optimize processes
Which one of the following statements regarding the structure and role of a board of directors is true? - ANS-Members of the board elect a director to be chairman of the board
All of the following are mechanisms to align manager and shareholder interests, EXCEPT - ANS- Expansion and growth
Which one of the following categories of agency costs is assumed by managers? - ANS-Bonding costs
risk-based regulation - ANS-A risk management approach to allocating resources to address risks in a way that will achieve the greatest good
Evidence based regulation - ANS-A regulatory approach that collects and uses objective performance data to set, evaluate, and improve policies
A CSF answers the question - ANS-What will make our organization a success
A KPI answers the question - ANS-What shows that we are a success
