Tag: Professional Accountant

Alex plc has analysed a particular risk faced by its Stafford division on a risk map.

It has concluded that the matter that was analysed has a low impact on the business but there is a high probability of its occurrence.

Which of the following risk responses by Alex plc would be most appropriate?

Select ONE answer:

1. Risk avoidance
2. Risk reduction
3. Risk transfer
4. Risk acceptance

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Notcorrect
2. Correct == > Where a risk falls into the low impact, high probability quadrant of the risk map the most appropriate response is risk reduction, focusing on reducing the likelihood of the adverse event occurring.
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Which of the following sequences represents the order in which an organisation should respond to risk?

Select ONE answer:

1. Reduction, avoidance, sharing (or transfer), acceptance (or retention)
2. Avoidance, reduction, sharing (or transfer), acceptance (or retention)
3. Reduction, sharing (or transfer), avoidance, acceptance (or retention)
4. Avoidance, sharing (or transfer), reduction, acceptance (or retention)

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Notcorrect
2. Correct == > First the company should see if the risk can be avoided; if not, it should try to reduce it; having reduced it as far as is feasible, it should explore the possibilities for sharing the risk (e.g. using insurance). Finally, it must accept the remaining risk.
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Which of the following is the best definition of the risk concept of ‘exposure’?

Select ONE answer:

1. How the factor to which a company is exposed is likely to alter
2. The amount of the loss if the undesired outcome occurs
3. The measure of the way in which a business is faced by risks
4. The likelihood that the undesirable outcome occurs

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct == > Risk exposure is simply the measure of the way a business is faced by risks, whether financial, business, event etc.
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

A particular project called the Staffie will yield either a profit of £100,000 or a loss of £50,000.

The profit will arise with a probability of 0.8 and the loss will arise with a probability of 0.2.

The project contains?

Select ONE answer:

1. Uncertainty only
2. Risk only
3. Both uncertainty and risk
4. Neither risk nor uncertainty

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Notcorrect
2. Correct == > All the outcomes and the probability of them occurring are known. As a result, there is no uncertainty, only risk.
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Jonny and Paul is a small firm providing advice on all aspects of personal finance.

Their industry is heavily regulated so, being a small firm, the costs of regulation can be a very heavy burden.

A newspaper article predicts that a further area of the firm’s current business, private medical insurance, may be subjected to brand new regulatory requirements from next year.

This possibility is an example of?

Select ONE answer:

1. Level of exposure and probability of occurrence
2. Potential loss and probability of occurrence
3. Potential loss and level of volatility
4. Level of exposure and level of volatility

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct == > This is clearly a regulatory (or legal) risk, which is a form of event risk.
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.