Certified Government Auditing Professional (CGAP) Practice Exam

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What does Enterprise Risk Management (ERM) involve?

  1. Guarantees achievement of organizational objectives

  2. Requires establishment of risk and control activities solely by auditors

  3. Involves identification of events with both positive and negative impacts

  4. Includes selection of the best risk response for the organization

The correct answer is: Involves identification of events with both positive and negative impacts

Enterprise Risk Management (ERM) is a comprehensive approach that organizations use to manage risks and seize opportunities related to the achievement of their objectives. One of the fundamental components of ERM is the identification of a wide range of events that can impact the organization's goals, whether positively or negatively. Identifying both the potential upside (opportunities) and downside (threats) of risks is crucial because it allows organizations to develop a balanced perspective on risk. This comprehensive identification process helps in making informed decisions that can drive growth while mitigating potential losses. By recognizing events that could lead to positive outcomes, organizations can proactively take advantage of opportunities rather than only reacting to risks. This approach contrasts with narrower risk management strategies that might focus solely on mitigating negative risks or threats. The inclusion of positive impacts reflects the dynamic nature of risks and the need for organizations to adapt in an ever-changing environment. The other options do not encapsulate the holistic nature of ERM. For instance, guaranteeing achievement of organizational objectives is not feasible as ERM seeks to manage uncertainties, not eliminate them. Establishing risk and control activities solely by auditors limits the broader involvement and responsibility across the organization that ERM promotes. Lastly, while selecting the best risk response is a part of ERM,