Learn the first crucial step internal audit takes in evaluating an organization’s risk management effectiveness according to IIA guidance. Prepare for the IIA-CIA-Part2 exam with this expert Q&A.
Table of Contents
Question
According to IIA guidance, which of the following is the first step the internal audit activity undertakes in determining the effectiveness of an organization’s risk management process?
A. Assess the appropriateness of the organization’s risk responses.
B. Assess the alignment of the organization’s vision and objectives.
C. Identify the organization’s significant risks.
D. Understand the organization’s risk appetite.
Answer
D. Understand the organization’s risk appetite.
Explanation
The first step the internal audit activity should take in determining the effectiveness of an organization’s risk management process is to understand the organization’s risk appetite. Risk appetite refers to the amount and type of risk an organization is willing to accept in pursuit of its objectives.
Internal audit needs to gain a clear understanding of management’s risk appetite in order to properly assess whether the risks being taken align with that appetite and with the organization’s objectives. The risk appetite provides essential context for evaluating the appropriateness of the organization’s risk responses and overall risk management.
Only after understanding the risk appetite can internal audit properly assess if significant risks have been identified and are being managed in accordance with the appetite. Attempting to identify risks or assess risk responses without first understanding what level of risk is acceptable to management would not allow for meaningful evaluation of risk management effectiveness.
So in summary, comprehending the organization’s risk appetite is the critical foundation that enables internal audit to then identify significant risks, assess risk responses, and ultimately determine if risk management processes are effective in managing risks to an acceptable level, in alignment with the organization’s risk appetite and objectives. But it all starts with clearly understanding management’s risk appetite.
IIA-CIA-Part2 certification exam assessment practice question and answer (Q&A) dump including multiple choice questions (MCQ) and objective type questions, with detail explanation and reference available free, helpful to pass the IIA-CIA-Part2 exam and earn IIA-CIA-Part2 certification.