UNIVERSITY OF SAN JOSE – RECOLETOS

COLLEGE OF COMMERCE – ACCOUNTANCY DEPARTMENT

GOVERNANCE, BUSINESS ETHICS AND RISK MANAGEMENT - ACCOUNTING 401

QUIZ 1: IDENTIFYING, ASSESSING AND MEASURING RISK

1. Which of the following statements regarding insurance and

gambling is (are) TRUE:
i. Insurance is used to handle existing pure risks, while
gambling creates a new speculative risk
ii. Insurance usually involves risk avoidance, while
gambling typically involves only risk reduction.

a. i only
b. ii only
c. both i and ii
d. neither i nor ii

2. A situation or circumstance in which a loss is possible

regardless of whether a loss occurs, is called a
a. Deductible
b. Loss exposure
c. Loss avoidance
d. Peril

3. A risk manager is concerned with which of the following?

i. identifying potential losses
ii. Selecting appropriate techniques for treating loss
exposures

a. i only
b. ii only
c. both i and ii
d. neither i nor ii

4. The worst loss that could ever happen to a firm is referred

to as the
a. Severity of loss
b. Probable maximum loss
c. Frequency of loss
d. Maximum possible loss

5. The worst loss that is likely to happen is referred to as:

a. Maximum possible loss

b. Frequency of loss
c. Severity of loss
d. Probable maximum loss

6. Ben purchased a service vehicle for the administrative use of

his accounting and bookkeeping services firm. Using the risk
map with the x-axis as the probability of frequency of the
risk materializing and y-axis as the impact/size of potential
loss, which of the following is the best depiction of the mix
of the probability and impact/size of a risk of loss of the
service vehicle due to catastrophic events?
 a. High probability – Low impact
b. High probability – High impact
c. Low probability – High impact
d. Low probability – Low impact

7. Traditionally, risk has been defined as

a. Any situation in which the probability of loss is one
b. Any situation in which the probability of loss is zero
c. Uncertainty concerning the occurrence of loss
d. The probability of a loss occurring

8. Which of the following is a source of information a risk

manager could use to help identify pure loss exposures?
a. Commodity prices
b. Physical inspections
c. Currency exchange rates
d. Interest rate movements

9. Risk management is concerned with

a. The identification and treatment of loss exposure
b. The management of speculative risks only
c. The management of pure risk that are uninsurable
d. The purchase of insurance only

10. Defined as the cause of a loss

a. Peril
b. Hazard
c. Risk
d. Uncertainty

11. This is composed of managers or key personnel from several

departments or functions responsible for reporting on a
particular category of risk in a particular geographical area
of the company’s operations.
a. Risk committee
b. Audit committee
c. Those charged with governance
d. Board of directors

12. Statement 1: Risks can be measured quantitatively.

Statement 2: Risks can be measured qualitatively.

a. TRUE, TRUE
b. TRUE, FALSE
c. FALSE, TRUE
d. FALSE, FALSE

13. ____ is a risk where there is a possibility that an adverse

event will occur. Events might turn out to be worse than
expected, but they cannot be better than expected
a. Downside risk
b. Speculative risk
c. Strategic risk
d. Operational risk
14. Bee Travels Corp. has the following information as of
January 1, 2020:
ASSETS LIABILITIES
Cash P50,000 Accounts P400,000
payable
Accounts 500,000 Long term 500,000
receivable liability
Investments 250,000 Total 900,000
liabilities
Fixed assets 1,000,000 EQUITY
Intangibles 200,000 Capital 200,000
Total Assets P2,000,000 Total P2,000,000
Liabilities
and Equity

Accounts receivable amounting to P300,000 were past due and

considered to be impaired. Remaining receivables are
collectible within a month.

Accounts payable are incurred on January 1, 2020 and has a

credit term from suppliers of 30 days.

Based on the information above, which of the following is an

applicable business risk?
a. Insolvency risk
b. Liquidity risk
c. Technological risk
d. Business probity risk

15. Based on information from item 14, Investments are

denominated in USD and EUR. For Philippine statutory
reporting, balance is converted to applicable PHP rates. The
risk that the value of the foreign currency denominated assets
may rise or fall is an example of:
a. Credit risk
b. Market risk
c. Technological risk
d. Legal risk

16. Based on information from item 14, Long term liability is

based on a contract with variable interest based on the
current economic condition of the industry where the long
term liability was drawn. Interest rate risk is an example
of:
a. Credit risk
b. Market risk
c. Liquidity risk
d. Liability risk

17. Insurance companies collect premiums in advance. Since the

premiums collected are not needed to pay losses and expenses
immediately, the funds can be loaned to business firms.
Because of this fact, insurance benefits society by
a. Enhancing credit
b. Providing a source of investment funds
c. Indemnifying losses
d. Providing an incentive for loss prevention
18. Refers to the level of risk that the Company is willing to
accept given the risks and exposures in the industry.
a. Diversifiable risk
b. Moral risk
c. Risk appetite
d. Risk exposure

19. Which of the following statements regarding hedging and

insurance is (are) TRUE?
i. Hedging handles risk that is typically uninsurable,
while insurance involves the transfer of an insurable risk.
ii. Hedging typically involves only risk transfer and not
risk reduction, while insurance transactions can reduce
objective risk

a. i only
b. ii only
c. both i and ii
d. neither i nor ii

20. What is the correct order of the stages of risk management:

i. Risk profiling
ii. Risk identification
iii. Risk measurement
iv. Risk monitoring
v. Risk treatment

a. i,ii, iii, iv, v

b. ii, i, iii, iv, v
c. ii, i, iii, v, iv
d. i, ii, iii, v, iv

21. Which of the following is not a risk management techniques?

a. Interviewing
b. Brainstorming
c. SWOT analysis
d. Network diagrams

22. What is Opportunities Management?

a. The management of any identified risk once it occurs
b. The management of positive risks
c. A new school of thought that treats the emergence of any
risk as an opportunity to re-work the project
d. Is a risk where there is a possibility that an adverse
event will occur

23. Which of the following is an advantage of using quantitative

method of risk analysis?
a. Less time consuming
b. More precise
c. Less reliance on software
d. More human intervention

24. Identifying “alternative strategies” is also known as

a. Emergency plan
b. Back-up plan
c. Contingency plan
d. Incident plan
25. Which of these is not a source of risk?
a. Political risk
b. Technology risk
c. Environmental risk
d. Functional risk

26. Which of the following best describes risk?

a. Uncertainty when looking to the future
b. Clarity in future decisions
c. Uncertainty when looking at the past
d. Certainty of not suffering harm or loss

27. DBC opened an all-you-can buffet restaurant. The price per-

person was based on what DBC believed an average restaurant
patron would consume. The restaurant began to lose money. DBC
concluded that his patrons had “above average” appetites, and
were attracted to his restaurant because they could eat as
much as they wanted while being charged an average price.
This problem is called
a. Legal hazard
b. Nondiversifiable risk
c. Attitudinal risk
d. Adverse selection

28. Why is Risk Management important? Which answer is incorrect?

a. Minimizes threats, maximizes opportunities and optimizes
the achievement of project objectives.
b. Reduce the number of threats that materialize into
problems and minimize the effects of those that do occur.
c. Failing to manage risk will result in more problems,
higher benefits and a higher chance of project success.
d. Results in opportunities being captured proactively and
turned into positive benefits for the project.

29. Which of the following best describes Risk management?

a. The deliberate approach or real time approach of
controlling risks
b. The process of identifying, assessing and controlling
risks arising from operational factors and making
decisions that balance risk cost with mission benefits
c. The ability to manage risks and implement controls
necessary to accomplish the mission
d. None of the statements above

30. What is the most common risk for a listed company?

a. Risk of lack of funds
b. Market risk
c. Reputation risk
d. Liquidity risk

31. Which of the following is a numerical measure of risk?

a. Net Present Value
b. Standard Deviation
c. Mean
d. Internal Rate of Return
32. Which of the following will minimize business risk?
a. Listing
b. Product development
c. Diversification
d. Premium pricing

33. What is the most significant risk for an airline company?

a. Safety risk
b. Liquidity risk
c. Reputation risk
d. Market risk

34. Statement 1: Risk assessment is an ongoing process.

Statement 2: Risk management is the process of managing
both pure risks and business risks.

a. TRUE, TRUE
b. TRUE, FALSE
c. FALSE, TRUE
d. FALSE, FALSE

35. A risk that affects the entire economy or large number of

persons or groups within the economy
a. Pure risk
b. Physical hazard
c. Diversifiable risk
d. Nondiversifiable risk

END OF EXAMS