Isaca CRISC Certified in Risk and Information Systems Control Exam Dumps and Practice Test Questions Set 9 Q121 — 135
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Question 121
An organization is implementing a new enterprise resource planning (ERP) system. What should be the PRIMARY focus when conducting a risk assessment for this implementation?
A) Identifying the cost of the ERP system
B) Evaluating the impact on business processes and operations
C) Determining the vendor’s market reputation
D) Assessing the technical skills of the IT team
Answer: B
Explanation:
When conducting a risk assessment for an ERP implementation, the primary focus should be on evaluating the impact on business processes and operations. ERP systems are integrated software solutions that affect multiple departments and critical business functions across an organization. Understanding how the implementation will impact existing processes, workflows, data management, and operational continuity is essential for identifying and managing risks effectively.
The risk assessment must consider how the new system will change current business operations, what disruptions might occur during the transition, and how these changes could affect the organization’s ability to achieve its objectives. This includes evaluating risks related to business process reengineering, data migration, system integration with existing applications, user adoption, and potential operational downtime. By focusing on business impact, risk professionals can identify critical areas that require additional controls, contingency planning, and risk mitigation strategies.
While identifying costs is important for budget management, it is not the primary focus of a risk assessment. The vendor’s market reputation is relevant for vendor selection but does not directly address the risks associated with implementation. Assessing the technical skills of the IT team is a component of risk assessment but is secondary to understanding the broader business impact. The primary goal of risk assessment is to ensure that the organization understands and can manage the potential negative effects on business operations and objectives.
Question 122
Which of the following is the MOST important consideration when establishing risk appetite for an organization?
A) Industry benchmarks and competitor analysis
B) Alignment with organizational objectives and strategy
C) Historical risk events and loss data
D) Regulatory compliance requirements
Answer: B
Explanation:
Risk appetite represents the amount and type of risk an organization is willing to accept in pursuit of its objectives. The most important consideration when establishing risk appetite is ensuring alignment with organizational objectives and strategy. Risk appetite must support the organization’s strategic goals, business model, and desired outcomes while considering the organization’s capacity to absorb losses and manage uncertainty.
When risk appetite is properly aligned with strategy, it provides a framework for decision-making that helps the organization pursue opportunities while maintaining an acceptable level of risk exposure. This alignment ensures that risk-taking activities are consistent with what the organization is trying to achieve and that resources are allocated appropriately. The board and senior management must define risk appetite in the context of strategic planning, considering factors such as stakeholder expectations, competitive positioning, financial capacity, and the organization’s culture and values.
While industry benchmarks can provide useful reference points, they should not dictate an organization’s risk appetite because each organization has unique circumstances, capabilities, and strategic objectives. Historical risk events provide valuable insights but represent past conditions that may not reflect current or future risk landscape. Regulatory compliance requirements establish minimum standards that must be met but do not define the optimal risk appetite for achieving strategic objectives. Risk appetite should be established based on what makes sense for the specific organization’s strategic direction and goals.
Question 123
During a risk assessment, an organization identifies that a critical database server lacks adequate backup procedures. What should be the FIRST step in addressing this risk?
A) Implement automated backup solutions immediately
B) Document the risk in the risk register
C) Calculate the annual loss expectancy
D) Assign a risk owner to manage the issue
Answer: B
Explanation:
When a risk is identified during a risk assessment, the first step should be to document the risk in the risk register. The risk register serves as the central repository for all identified risks and provides a systematic way to track, monitor, and manage risks throughout their lifecycle. Documentation should include details about the risk description, potential impact, likelihood, affected assets, and current control environment.
Proper documentation is essential before taking any remediation action because it establishes a baseline for risk management activities and ensures that the risk is formally recognized and tracked. The risk register enables the organization to prioritize risks, assign ownership, determine appropriate response strategies, and monitor the effectiveness of risk treatments over time. Without proper documentation, risks may be overlooked, forgotten, or addressed inconsistently, leading to gaps in the organization’s risk management program.
While implementing automated backup solutions may ultimately be the appropriate risk response, it should not be done immediately without proper analysis, planning, and approval. Calculating annual loss expectancy is part of risk analysis that helps quantify the potential impact but should follow initial documentation. Assigning a risk owner is an important step in risk management but occurs after the risk has been properly documented and analyzed. The logical sequence is to first document the identified risk, then analyze it, assign ownership, determine the appropriate response strategy, and finally implement controls or other risk treatments based on approved plans.
Question 124
An organization has implemented a new control to mitigate a high-priority risk. What is the BEST way to verify the control’s effectiveness?
A) Review the control design documentation
B) Conduct independent testing of the control
C) Interview the control owner about implementation
D) Compare the control against industry standards
Answer: B
Explanation:
The best way to verify a control’s effectiveness is to conduct independent testing of the control. Testing provides objective evidence that the control is operating as intended and achieving its purpose of mitigating the identified risk. Independent testing involves examining the control in action, reviewing outputs, sampling transactions, and verifying that the control consistently performs its intended function under various conditions.
Effective testing evaluates both control design and operating effectiveness. It assesses whether the control is properly designed to address the risk and whether it is functioning consistently over time. Testing should be performed by individuals who are independent of the control’s implementation and operation to ensure objectivity and avoid conflicts of interest. The results of testing provide management with reliable information about whether the control is reducing risk exposure to acceptable levels and whether any adjustments are needed to improve control performance.
Reviewing control design documentation only verifies that the control is theoretically sound but does not confirm that it is actually working in practice. Documentation review is an important step but insufficient on its own to verify effectiveness. Interviewing the control owner provides insights but relies on subjective information and may be biased. Control owners may not be fully aware of control failures or may overestimate effectiveness. Comparing controls against industry standards helps ensure controls meet baseline requirements but does not verify whether the specific control is operating effectively in the organization’s unique environment.
Question 125
Which of the following BEST describes the relationship between inherent risk and residual risk?
A) Inherent risk is always higher than residual risk
B) Residual risk is the risk remaining after controls are applied to inherent risk
C) Inherent risk and residual risk are always equal
D) Residual risk exists only when controls fail
Answer: B
Explanation:
Residual risk is the risk remaining after controls are applied to inherent risk. This relationship is fundamental to risk management and control frameworks. Inherent risk represents the level of risk that exists in the absence of any controls or risk mitigation measures. It reflects the natural or raw level of risk exposure based on the nature of the activity, asset, or process. Residual risk represents what remains after management has implemented controls, safeguards, or other risk responses to reduce the inherent risk to an acceptable level.
The goal of risk management is to reduce inherent risk to a level of residual risk that falls within the organization’s risk appetite and tolerance. This is achieved through the implementation of controls and other risk mitigation strategies. The difference between inherent risk and residual risk represents the risk reduction achieved through control activities. Understanding this relationship helps organizations make informed decisions about control investments and determine whether additional controls are needed to further reduce residual risk.
While inherent risk is often higher than residual risk when effective controls are in place, this is not always the case. In some situations, controls may be ineffective or absent, resulting in residual risk being equal to or approaching inherent risk levels. The statement that they are always equal is incorrect because the purpose of implementing controls is to reduce risk levels. Residual risk exists whenever there is any level of risk remaining, not only when controls fail. Even well-designed and effectively operating controls rarely eliminate risk entirely.
Question 126
An organization is developing a business continuity plan (BCP). What should be the FIRST step in this process?
A) Identify recovery time objectives for critical systems
B) Conduct a business impact analysis
C) Establish backup and recovery procedures
D) Test the disaster recovery plan
Answer: B
Explanation:
The first step in developing a business continuity plan should be to conduct a business impact analysis. A business impact analysis is a systematic process that identifies and evaluates the potential effects of disruptions to critical business operations and processes. It provides the foundation for all subsequent business continuity planning activities by determining which business functions are most critical, understanding dependencies, and quantifying the potential impacts of disruptions over time.
The business impact analysis identifies critical business processes, assesses the financial and operational impacts of disruptions, determines maximum tolerable downtime, and establishes priorities for recovery efforts. This analysis examines both quantitative impacts such as revenue loss, regulatory fines, and recovery costs, as well as qualitative impacts such as reputation damage, customer confidence, and competitive position. The findings from the business impact analysis inform decisions about resource allocation, recovery strategies, and the level of investment required for business continuity capabilities.
Without conducting a business impact analysis first, the organization lacks the necessary information to make informed decisions about recovery priorities and objectives. Identifying recovery time objectives requires understanding which processes are most critical and how quickly they must be restored, information that comes from the business impact analysis. Establishing backup and recovery procedures and testing disaster recovery plans are important steps but should be based on priorities and requirements identified through the business impact analysis. Following a logical sequence ensures that business continuity planning efforts are aligned with actual business needs and priorities.
Question 127
Which of the following is the PRIMARY benefit of implementing a risk management framework?
A) Eliminating all risks to the organization
B) Providing a structured approach to identifying and managing risks
C) Reducing insurance premiums and operational costs
D) Ensuring compliance with all regulatory requirements
Answer: B
Explanation:
The primary benefit of implementing a risk management framework is providing a structured approach to identifying and managing risks. A risk management framework establishes consistent processes, methodologies, and governance structures that enable organizations to systematically identify, assess, respond to, and monitor risks. This structured approach ensures that risk management activities are integrated into business operations, aligned with organizational objectives, and performed consistently across the enterprise.
A well-designed risk management framework provides clarity about roles and responsibilities, establishes common terminology and risk criteria, defines risk assessment methodologies, and creates reporting mechanisms that support informed decision-making. It enables organizations to proactively identify potential threats and opportunities, evaluate their significance, determine appropriate responses, and monitor risk levels over time. The framework promotes a risk-aware culture where risk considerations are embedded in strategic planning, project management, and day-to-day operations. This systematic approach helps organizations make better decisions, allocate resources more effectively, and improve their ability to achieve objectives while managing uncertainty.
It is neither possible nor desirable to eliminate all risks, as some level of risk-taking is necessary to pursue opportunities and achieve objectives. While effective risk management may contribute to reduced insurance costs through better loss prevention, this is a secondary benefit rather than the primary purpose. Similarly, while risk management frameworks often support compliance efforts, ensuring compliance with all regulatory requirements is not the primary benefit. The fundamental value lies in providing a structured, consistent methodology for managing risks across the organization.
Question 128
An organization discovers that a third-party vendor has experienced a data breach. What should be the IMMEDIATE priority?
A) Terminate the contract with the vendor
B) Assess the potential impact on the organization
C) Conduct a forensic investigation
D) Notify all customers about the breach
Answer: B
Explanation:
When an organization discovers that a third-party vendor has experienced a data breach, the immediate priority should be to assess the potential impact on the organization. This assessment determines the scope and severity of the incident, identifies what data or systems may have been compromised, evaluates potential business impacts, and informs subsequent response actions. Understanding the impact is critical for making informed decisions about incident response, stakeholder notifications, and risk mitigation measures.
The impact assessment should consider several factors including what types of data the vendor had access to, whether any of the organization’s sensitive information was compromised, what systems or services are affected, potential regulatory implications, and possible effects on operations, customers, and reputation. This initial assessment helps the organization determine the urgency and nature of required response actions. It also provides the basis for activating appropriate incident response procedures, engaging necessary stakeholders, and determining whether regulatory notifications or customer communications are required.
Terminating the vendor contract may be an eventual outcome but should not be the immediate action without first understanding the situation and considering contractual obligations and operational dependencies. Conducting a forensic investigation is typically the vendor’s responsibility initially, though the organization may need to conduct its own investigation depending on the circumstances. Notifying customers should only occur after understanding what information was compromised and whether notification is legally required or appropriate. Premature notifications without accurate information can cause unnecessary alarm and damage credibility. The logical first step is always to understand the situation through impact assessment.
Question 129
Which of the following is the MOST effective method for ensuring that risk responses are appropriate and cost-effective?
A) Implementing the most expensive control solution
B) Conducting a cost-benefit analysis
C) Following industry best practices exclusively
D) Avoiding all high-risk activities
Answer: B
Explanation:
The most effective method for ensuring that risk responses are appropriate and cost-effective is conducting a cost-benefit analysis. A cost-benefit analysis compares the expected costs of implementing a risk response against the benefits it provides in terms of risk reduction. This analysis helps organizations make rational decisions about risk treatment by ensuring that the investment in controls and mitigation measures is proportionate to the level of risk being addressed and the value being protected.
Cost-benefit analysis considers both quantitative and qualitative factors including the cost of implementing and maintaining controls, the reduction in expected losses, improvements in operational efficiency, and intangible benefits such as enhanced reputation or stakeholder confidence. The analysis helps identify the most economically efficient risk response options and prevents organizations from over-investing in controls that provide minimal risk reduction or under-investing in areas where controls would provide significant value. It supports the principle that risk management activities should create value and that the cost of controls should not exceed the potential impact of the risk being mitigated.
Implementing the most expensive control solution assumes that higher cost equals better protection, which is not necessarily true. Cost does not always correlate with effectiveness, and expensive solutions may provide diminishing returns. Following industry best practices exclusively ignores the organization’s specific context, risk appetite, and resource constraints. Best practices should inform decisions but must be adapted to organizational needs. Avoiding all high-risk activities would prevent the organization from pursuing legitimate business opportunities and innovations. Effective risk management involves taking calculated risks that align with strategic objectives.
Question 130
An organization’s risk register shows several risks that have exceeded their risk tolerance levels. What should be the risk manager’s FIRST course of action?
A) Update the risk tolerance levels to match current risk exposures
B) Escalate the risks to senior management for decision-making
C) Implement additional controls immediately
D) Transfer the risks to a third party
Answer: B
Explanation:
When risks exceed established tolerance levels, the risk manager’s first course of action should be to escalate the risks to senior management for decision-making. Risk tolerance represents the acceptable level of variation in outcomes related to specific objectives, and when risks exceed these thresholds, they require attention and decisions from individuals with appropriate authority. Senior management must be informed of risks that fall outside acceptable parameters so they can determine the appropriate response strategy and allocate necessary resources.
Escalation ensures that risks receive appropriate visibility and that decisions about risk responses are made at the right organizational level. Senior management has the authority to approve additional resources, change business strategies, accept increased risk levels temporarily, or make other significant decisions that may be required to address risks exceeding tolerance. The escalation process should provide management with relevant information about the nature of the risks, their potential impacts, available response options, and recommendations from the risk management function. This enables informed decision-making about how to bring risks back within acceptable levels or whether to temporarily accept higher risk exposure with appropriate justification.
Updating risk tolerance levels to match current exposures would be inappropriate as it undermines the purpose of having risk tolerances and essentially accepts unacceptable risk levels without proper authority or consideration. Implementing additional controls immediately without management approval may exceed the risk manager’s authority and commit resources without proper authorization. Transferring risks to third parties is one potential response strategy but requires management decision and approval. The proper sequence is to first escalate to management, then implement approved response strategies.
Question 131
During a risk assessment, which of the following sources provides the MOST reliable information about the likelihood of a risk occurring?
A) Expert judgment and opinions
B) Historical data and trend analysis
C) Industry reports and surveys
D) Vendor marketing materials
Answer: B
Explanation:
Historical data and trend analysis provide the most reliable information about the likelihood of a risk occurring. Historical data represents actual events and outcomes that have occurred within the organization or similar contexts over time. By analyzing patterns, frequencies, and trends in historical data, risk professionals can develop evidence-based estimates of how likely similar events are to occur in the future. This empirical approach provides objective, quantifiable information that reduces subjectivity in risk assessment.
Trend analysis of historical data helps identify patterns of risk events, seasonal variations, correlations with business activities, and changes in risk levels over time. This information enables more accurate probability estimates and helps organizations understand the conditions under which certain risks are more likely to materialize. Historical data can include internal incident records, loss event databases, system availability statistics, control failure rates, and other measurable indicators. When sufficient historical data is available, statistical methods can be applied to calculate probability distributions and confidence intervals, providing a solid foundation for risk quantification.
Expert judgment and opinions are valuable, especially when historical data is limited, but they are inherently subjective and can be influenced by cognitive biases, recent experiences, and individual perspectives. Industry reports and surveys provide useful context and benchmarking information but may not accurately reflect the specific circumstances of a particular organization. Different organizations have different control environments, risk profiles, and operational characteristics that affect actual risk likelihood. Vendor marketing materials are the least reliable source as they are designed to promote products and services rather than provide objective risk information.
Question 132
What is the PRIMARY purpose of conducting regular risk assessments?
A) To comply with audit requirements
B) To identify changes in the risk environment
C) To justify the IT security budget
D) To eliminate all organizational risks
Answer: B
Explanation:
The primary purpose of conducting regular risk assessments is to identify changes in the risk environment. The risk landscape is dynamic and constantly evolving due to factors such as new technologies, changing business processes, emerging threats, evolving regulations, market conditions, and organizational changes. Regular risk assessments enable organizations to detect new risks that have emerged, identify changes in the likelihood or impact of existing risks, and recognize risks that may no longer be relevant or significant.
Conducting risk assessments at regular intervals ensures that the organization’s understanding of its risk profile remains current and accurate. This ongoing monitoring allows management to make timely decisions about risk responses, adjust control strategies, reallocate resources, and maintain alignment between risk management activities and organizational objectives. Regular assessments help organizations stay ahead of potential problems by identifying risks while there is still time to implement effective responses. They also provide opportunities to evaluate whether existing controls remain effective as circumstances change and whether risk appetite and tolerance levels continue to be appropriate.
While conducting risk assessments may support compliance with audit requirements, this is a secondary benefit rather than the primary purpose. Compliance obligations should be met, but the fundamental goal of risk assessment is to understand and manage risks effectively. Justifying IT security budgets may be one outcome of risk assessments, but this is not their main purpose. Risk assessments inform resource allocation decisions across all areas of the organization, not just IT security. Eliminating all organizational risks is neither achievable nor desirable, as some risk-taking is necessary for innovation and growth.
Question 133
An organization is implementing a new risk management information system. What should be the PRIMARY consideration when selecting this system?
A) The system has the lowest implementation cost
B) The system supports the organization’s risk management processes
C) The system is used by industry competitors
D) The system includes advanced analytics capabilities
Answer: B
Explanation:
The primary consideration when selecting a risk management information system should be whether the system supports the organization’s risk management processes. The system must align with and enable the organization’s established risk management framework, methodologies, and workflows. An effective risk management information system should facilitate risk identification, assessment, response, monitoring, and reporting activities in ways that match how the organization actually conducts risk management.
The system should support the organization’s specific requirements including risk categorization schemes, assessment methodologies, reporting structures, integration with other systems, user access controls, and workflow approvals. It must accommodate the organization’s risk taxonomy, enable appropriate aggregation and analysis of risk data, and produce reports that meet stakeholder needs. The system should enhance rather than hinder risk management activities by providing appropriate functionality, usability, and flexibility. When a system aligns well with organizational processes, it increases user adoption, improves data quality, enables better decision-making, and enhances the overall effectiveness of the risk management program.
While cost is an important consideration in any technology investment, selecting a system primarily based on lowest cost can result in acquiring a solution that does not meet functional requirements or provide adequate capabilities. Industry adoption by competitors provides some validation but does not guarantee that a system is appropriate for the specific organization’s needs and processes. Advanced analytics capabilities are valuable but should be evaluated in the context of whether the organization has the data, skills, and processes to utilize them effectively. Sophisticated features that do not support actual business needs provide little value.
Question 134
Which of the following BEST describes key risk indicators (KRIs)?
A) Metrics that provide an early warning of increasing risk exposure
B) Risks that have the highest impact on the organization
C) Controls that prevent risks from occurring
D) Indicators of past risk events and losses
Answer: A
Explanation:
Key risk indicators are metrics that provide an early warning of increasing risk exposure. KRIs are forward-looking measures that help organizations monitor changes in risk levels and identify potential problems before they result in actual risk events or losses. By tracking relevant indicators over time, organizations can detect trends, patterns, or threshold breaches that signal deteriorating risk conditions, enabling proactive risk management and timely intervention.
Effective KRIs are predictive in nature and provide actionable information that triggers management attention and response. They should be measurable, relevant to specific risks, regularly monitored, and aligned with risk appetite and tolerance levels. Examples include increases in system downtime, rising error rates, growing numbers of security incidents, declining customer satisfaction scores, or changes in key financial ratios. When KRIs approach or exceed defined thresholds, they alert management to take corrective action, investigate root causes, or implement additional controls to prevent risk levels from escalating further.
KRIs should not be confused with the concept of key risks, which refers to the most significant risks facing an organization based on their potential impact and likelihood. Controls that prevent risks from occurring are preventive controls, not indicators. While controls reduce risk exposure, KRIs measure whether risk levels are changing. Indicators of past risk events and losses are lagging indicators or loss metrics that measure what has already occurred. While historical data is valuable for understanding risk patterns, KRIs specifically focus on providing early warning signals about future risk exposure rather than simply recording past events.
Question 135
An organization wants to implement a risk-based approach to internal auditing. What should be the FIRST step?
A) Develop the annual audit schedule
B) Hire additional audit staff
C) Understand the organization’s risk profile
D) Implement continuous monitoring tools
Answer: C
Explanation:
The first step in implementing a risk-based approach to internal auditing should be to understand the organization’s risk profile. A risk-based audit approach prioritizes audit activities based on areas of highest risk to the organization, ensuring that audit resources are focused where they can provide the most value. To implement this approach effectively, auditors must have a comprehensive understanding of the risks the organization faces, their potential impacts, likelihood, and the effectiveness of existing controls.
Understanding the risk profile involves reviewing the organization’s risk register, risk assessments, strategic objectives, business processes, control environment, and previous audit findings. It requires engaging with management to understand their risk concerns, analyzing the industry and regulatory environment, and considering both financial and operational risks. This understanding enables the internal audit function to identify which areas require audit attention most urgently and to design audit procedures that effectively evaluate whether risks are being managed within acceptable levels. The risk profile serves as the foundation for all subsequent decisions about audit priorities, scope, and resource allocation.
Developing the annual audit schedule is an important step but cannot be done effectively without first understanding the risk profile. The audit schedule should be driven by risk considerations rather than arbitrary factors such as rotation schedules or convenience. Hiring additional audit staff may be necessary depending on audit needs, but this decision should be informed by understanding the scope and complexity of risks to be audited. Implementing continuous monitoring tools can enhance audit effectiveness but the selection and configuration of these tools should be guided by understanding which risks require ongoing monitoring.