While considering entity-based risks, which dimension of the COSO ERM framework is being referred?
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A. B. C. D.A.
The organizational levels of the COSO ERM framework describe the subsidiary, business unit, division, and entity-levels of aspects of risk solutions.
Incorrect Answers: B: Risk components includes Internal Environment, Objectives settings, Event identification, Risk assessment, Risk response, Control activities, Information and communication, and monitoring.
C: Strategic objectives includes strategic, operational, reporting, and compliance risks; and not entity-based risks.
D: This is not a valid answer.
Entity-based risks refer to the risks that arise due to the nature of an entity's operations, internal and external factors, and the environment in which it operates. The COSO ERM (Enterprise Risk Management) framework provides a comprehensive approach to manage risks that a business faces.
The COSO ERM framework comprises eight interrelated components that work together to manage risks effectively. These components are:
Internal environment: It refers to the tone of the organization, integrity, and ethical values. It sets the foundation for how risk management will be implemented within the entity.
Objective setting: It involves setting strategic objectives aligned with the mission and vision of the entity, along with risk objectives that align with the entity's overall strategy.
Event identification: It refers to identifying events that may affect the entity's objectives.
Risk assessment: It involves assessing risks based on their likelihood of occurring and their potential impact on the entity's objectives.
Risk response: It involves selecting and implementing risk responses that align with the entity's risk appetite and risk tolerance.
Control activities: It refers to the policies and procedures that are implemented to ensure that the entity's risk responses are effective and efficient.
Information and communication: It involves ensuring that relevant information is identified, captured, and communicated in a timely and effective manner.
Monitoring: It involves monitoring the effectiveness of the entity's risk management process and making necessary changes to ensure continuous improvement.
Answer: B. Risk components.
When considering entity-based risks, we are referring to the risk components of the COSO ERM framework. The risk components involve the identification and assessment of risks that are inherent in an entity's operations and environment. These risks are then evaluated against the entity's overall strategy and risk appetite, and appropriate risk responses are selected and implemented.
Therefore, option B is the correct answer, as it refers to the specific component of the COSO ERM framework that is relevant to managing entity-based risks.