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1. Over 90% of large organizations with sales revenue of more than $1 billion engage in some type of enterprise risk
management (ERM).
a. True
b. False
2. An inherent risk is the risk that remains after any risk management action has been taken.
a. True
b. False
3. The decision to form a strategic alliance with a new business partner to respond to the risk of low product quality
represents an example of risk avoidance.
a. True
b. False
4. The term business sustainability is synonymous with the term environmental sustainability.
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a. True
b. False
5. Business sustainability is valuable because it improves decision making by helping managers understand how their
various decisions involving stakeholder issues relate to important performance measures.
a. True
b. False
6. In most countries and business environments, sustainability reporting must adhere to generally accepted accounting
principles.
a. True
b. False
7. Prevention costs are incurred to determine whether products and services are conforming to their requirements.
a. True
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b. False
8. Of all the costs of quality, external failure costs can be the most devastating.
a. True
b. False
9. Lean manufacturing reduces wait and move times dramatically and allows the production of small batches of differing
products.
a. True
b. False
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10. A companion to a demand-push system is JIT purchasing.
a. True
b. False
11. The lean control system replaces the traditional standard costing approach with a Box Scorecard that compares
operational, capacity, and financial metrics with prior week performances and with a future desired state.
a. True
b. False
12. Outsourcing is a payment made by a company for a business function formerly done in house.
a. True
b. False
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13. The forward rate is the exchange rate of one currency for another for immediate delivery.
a. True
b. False
14. The Association of Certified Fraud Examiners (ACFE) is the largest provider of antifraud training and education.
a. True
b. False
15. The three components of the fraud triangle are financial need, opportunity, and ability to rationalize.
a. True
b. False
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16. _________ is measured as the benefit of risk response minus the cost of risk response.
17. _________ can be defined as the difference between the inherent risk and the residual risk produced by the particular
risk response.
18. _________ refers to the voluntary public disclosure of qualitative and/or quantitative information about an
organization’s performance on one or more financial and/or nonfinancial dimensions.
19. _________ is the external verification that an independent party provides concerning the content of a corporate
sustainability report and/or the process used in preparing a corporate sustainability report.
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20. _________ are incurred to prevent poor quality in the products or services being produced.
21. A _________ is one that does not conform to quality specifications.
22. The _________ is made up of all the processes that a product must pass through, from the initial customer order to the
delivery to the customer.
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23. _________ requires suppliers to deliver parts and materials just in time to be used in production, eliminating the need
for materials inventories.
24. The U.S. government has set up _________, which are areas near a customs port of entry that are physically on U.S.
soil but are considered to be outside U.S. commerce.
25. A(n) _________ is the gain on the exchange of one currency for another due to appreciation of the home currency.
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26. _________ is defined as wrongful or criminal deception intended to result in financial or personal gain.
27. The _________ is a model that explains the factors causing someone to commit fraud.
28. Which of the following is true of enterprise risk management (ERM)?
a. Enterprise risk management helps an organization make better decisions in uncertain business environments.
b. Only small organizations with sales revenue of $1 million or less engage in some type of ERM.
c. Most organizations in the world already have perfect ERM systems.
d. The most important reason for using enterprise risk management is to ensure complete elimination of all risks that
an organization may face.
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29. Which of the following is the most important reason for an organization to use enterprise risk management?
a. To help an organization achieve its strategy through identifying, measuring, and managing the organization’s most
important risks and opportunities
b. To ensure complete elimination of all risks that the organization may face
c. To eliminate the possibility of the organization’s present value of future cash flows being affected by exchange
rate fluctuations
d. To help an organization recover the costs incurred to determine whether products and services conform to quality
requirements
30. An organization’s overall desired level of risk taking is referred to as its:
a. residual risk.
b. risk assessment ability.
c. risk response.
d. risk appetite.
31. Which of the following statements is true of the risk appetite determination step within the enterprise risk management
(ERM) process of an organization?
a. Determining an organization’s risk appetite involves identifying the top risks and assessing risks at the inherent
level.
b. Determining an organization’s risk appetite involves determining the organization’s desired overall level of risk
taking.
c. Determining an organization’s risk appetite is the final step in the iterative enterprise risk management process.
d. Determining an organization’s risk appetite requires input from a cross-functional team to capture all the threats—
or risks—to the organization.
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32. Which of the following steps within the enterprise risk management (ERM) process should occur immediately after
the risk assessment?
a. Risk Appetite Determination
b. Risk Monitoring
c. Risk Response
d. Risk Identification
33. After determining risk appetite, enterprise risk management process immediately involves:
a. assessing top risks at the inherent level.
b. managing risks such that the remaining residual risks align with the organization’s risk appetite.
c. revaluating the accuracy of the management’s risk assessments.
d. identifying the most important risks.
34. Which of the following is true of an inherent risk?
a. An inherent risk is the probability or likelihood of a risk occurring multiplied by the impact should it actually
occur.
b. An inherent risk is avoided by enacting some particular procedure to decrease the inherent risk to a lower residual
risk level.
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c. An inherent risk can be defined as the difference between the risk response benefit and the residual risk produced
by the particular risk response.
d. An inherent risk is the risk that remains after any risk management action has been taken.
35. Which of the following is true of a residual risk?
a. A residual risk is a risk that exists absent of any risk management action to reduce or avoid the risk.
b. A residual risk is a risk that can be avoided by enacting some particular procedure to decrease the residual risk to
a lower inherent risk level.
c. A residual risk is a risk that remains after any risk management action has been taken.
d. A residual risk is the probability or likelihood of a risk occurring multiplied by the impact should it actually
occur.
36. A company has decided to sell off a business unit as the management believes it cannot manage the associated risk(s)
in a cost-beneficial manner. Which of the following risk response alternatives is represented by this example?
a. Accept
b. Avoid
c. Transfer
d. Retain
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37. To avoid an inherent risk means that the company:
a. ceases to perform the activity that gave rise to the risk.
b. enacts some particular procedure to decrease the inherent risk to a lower residual risk level.
c. simply continues conducting business as normal.
d. transfers its risk to an insurance company.
38. Risk response net benefit is measured as the:
a. difference between an inherent risk and a residual risk produced by a particular risk response.
b. sum of an inherent risk and a residual risk produced by a particular risk response.
c. benefit of risk response minus the cost of risk response.
d. difference between the incremental cost incurred by a company to implement a particular risk response and the
residual risk.
39. Risk response benefit can be defined as:
a. the difference between an inherent risk and a residual risk produced by a particular risk response.
b. the benefit of the risk response minus the cost of risk response.
c. the sum of an inherent risk and a residual risk produced by a particular risk response.
d. the difference between the incremental cost incurred by a company to implement a particular risk response and
the residual risk.
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40. Enterprise risk management (ERM) uses a portfolio perspective to ensure:
a. that the organization’s most important residual risks are aligned with its risk appetite.
b. that the organization’s most important inherent risks are greater than its risk appetite.
c. that the organization’s most important residual risks are less than its risk appetite.
d. that the organization’s most important inherent risks are aligned with its risk appetite.
41. A company has recently taken a fire insurance policy on a warehouse facility. Which of the following risk response
alternatives is represented by this?
a. Accept
b. Avoid
c. Reduce
d. Retain
42. Which of the following is true of risk response cost?
a. Risk response cost is not used to estimate the net benefit of each risk response alternative.
b. It is easy to accurately estimate risk response cost.
c. Risk response cost includes only indirect costs.
d. It is the incremental cost incurred by the company to implement the given risk response.
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43. The residual risk associated with a particular risk response alternative equals the:
a. likelihood that remains after the alternative is implemented multiplied by the impact that remains after the
alternative is implemented.
b. likelihood that remains after the alternative is implemented divided by the impact that remains after the alternative
is implemented.
c. likelihood that remains after the alternative is implemented divided by the risk response cost.
d. likelihood that remains after the alternative is implemented multiplied by the risk response cost.
44. The benefit associated with a particular risk response alternative equals the:
a. inherent risk plus the response cost.
b. inherent risk minus the residual risk.
c. inherent risk plus the residual risk.
d. residual risk minus the response cost.
45. Which of the following is true of business sustainability?
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a. Business sustainability requires that management considers the numerous stakeholders, as well as threats and
opportunities, involved with major decisions throughout the company.
b. The term business sustainability is synonymous with the term environmental sustainability.
c. Business sustainability requires that management considers only shareholder concerns involved with major
decisions throughout the company.
d. Business sustainability begins first and foremost with the organizational risk management process.
46. _____ immediately follows performance measurement within the business sustainability cycle.
a. Sustainability reporting
b. Sustainability assurance
c. Stakeholder engagement
d. Risk management
47. Which of the following areas in the business sustainability cycle immediately follows stakeholder engagement?
a. Performance measurement
b. Sustainability reporting
c. Sustainability assurance
d. Risk Management
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48. As per PricewaterhouseCoopers’ survey of 1,409 CEOs from across 83 countries, the stakeholders who had the
greatest impact on an organization’s strategy are:
a. customers and clients.
b. speculators.
c. lobbyists.
d. nongovernment organizations.
49. Which of the following is true of stakeholder engagement?
a. It is the area within the business sustainability cycle that immediately follows sustainability reporting.
b. Stakeholder engagement is the area within the business sustainability cycle that immediately follows performance
measurement.
c. Stakeholder engagement varies from casual, impromptu, informal conversations all the way to regular, structured
interactions.
d. It is not possible to quantify the results of stakeholder engagement activities.
50. Which of the following is true of performance measurement?
a. It is the area within the business sustainability cycle that immediately follows sustainability reporting.
b. It is the area within the business sustainability cycle that immediately follows stakeholder engagement.
c. It is related to activities that are unrelated to an organization’s stakeholders and risks.
d. It can help improve an organization’s business sustainability efforts.
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51. Business sustainability is valuable because:
a. it improves decision-making by managers.
b. it enables organizations to please all key stakeholders all the time.
c. it enables organizations to eliminate all the risks they may face.
d. it ensures complete elimination of stakeholder concerns.
52. Management accountants play an important role in:
a. helping managers better understand the connection between specific decisions and key stakeholder concerns.
b. addressing all stakeholder concerns or giving them all equal priority.
c. eliminating all the risks that an organization may face.
d. helping managers randomly respond to stakeholders who yell the loudest hoping for the best.
53. According to the KPMG’s Survey of Corporate Responsibility Reporting (2015), _____ percent of the world’s largest
organizations issue a sustainability report.
a. 50
b. 10
c. 92
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d. 25
54. Which of the following is true of corporate sustainability reporting?
a. Corporate sustainability reporting is synonymous with traditional financial reporting.
b. Corporate sustainability reporting must adhere to generally accepted accounting principles.
c. Corporate sustainability reporting is required to have the report contents verified by an independent third party.
d. Corporate sustainability reporting is voluntary in nature.
55. Which of the following is true of traditional financial reporting?
a. Traditional financial reporting is not mandatory but voluntary in nature.
b. Traditional financial reporting must adhere to generally accepted accounting principles.
c. Traditional financial reporting does not require that the report contents be verified by an independent third party.
d. Traditional financial reporting is synonymous with corporate sustainability reporting.
56. Which of the following is true of sustainability assurance?
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a. It is the external verification that an independent party provides concerning the content of a corporate
sustainability report.
b. Traditionally, most organizations have found it much easier to estimate the benefits of corporate sustainability
reporting (CSR) assurance than the costs.
c. The cost of corporate sustainability reporting (CSR) assurance is always negligible.
d. The lack of a generally accepted set of reporting standards for preparing corporate sustainability reports leads to
lower assurance costs.
57. Which of the following is the most significant benefit of having a corporate sustainability report (CSR) assured by an
independent third party?
a. The assurance will enable management to address all stakeholder concerns with equal priority.
b. The assurance will enable the organization to eliminate all the risks it may face.
c. The assurance will enable people to trust the CSR’s content for external stakeholders more easily.
d. The assurance will provide exemption to an organization from filing annual reports.
58. Global Reporting Initiative and the Sustainability Accounting Standards Board each have published reporting
standards that:
a. are often used by organizations when preparing their corporate sustainability reports (CSRs).
b. must be used by organizations when preparing their corporate sustainability reports (CSRs).
c. are widely recognized as generally accepted.
d. have been under development since the early 1930s.