The Role of Risk Appetite in an Organization's Security Management | CISM Exam Prep

C.

Residual risk is unmanaged, i.e., inherent risk which remains uncontrolled.

This is key to the organization's risk appetite and is the amount of residual risk that a business is living with that affects its viability.

Hence, inherent risk is incorrect.

Control risk, the potential for controls to fail, and audit risk, which relates only to audit's approach to their work, are not relevant in this context.

The risk appetite of an organization is the amount of risk that an organization is willing to accept or tolerate in pursuit of its objectives. This risk appetite is a reflection of the organization's overall business strategy, objectives, and goals. Therefore, the risk appetite of an organization is not a specific type of risk, but rather a measure of how much risk the organization is willing to take on in pursuit of its goals.

The answer to this question is not A, B, C, or D since none of these options are risks that are represented in the risk appetite of an organization.

Control risk refers to the risk that arises from the failure of internal controls in preventing or detecting errors or fraud. Inherent risk refers to the risk that exists in a process or activity before any controls are applied to mitigate it. Residual risk refers to the risk that remains after controls have been applied to mitigate inherent risk. Audit risk refers to the risk that the auditor may provide an inappropriate opinion on the financial statements.

To elaborate further, the risk appetite of an organization is a strategic decision that considers various factors such as legal, regulatory, financial, and operational risks. The organization's risk appetite is typically set by senior management and the board of directors based on the organization's business strategy, objectives, and goals.

For instance, if the organization is pursuing aggressive growth, it may be willing to take on higher levels of financial and operational risk. On the other hand, if the organization's main priority is stability and security, it may be more risk-averse.

In conclusion, the risk appetite of an organization is not a specific type of risk but a measure of how much risk an organization is willing to accept or tolerate in pursuit of its goals.