COSO-FRM Sample Questions & Answers
Fraud risk assessment and control activities tie for the biggest weight, with smaller, roughly even shares for framework basics, governance, investigating and correcting incidents, ongoing monitoring, and the data-analytics tools that support the program.
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- Question 1Advanced
Introduction to Fraud Risk Management · COSO Framework Foundations
A multinational manufacturing enterprise has recently experienced significant growth through acquisitions. The Board of Directors has mandated the integration of the COSO 2017 Enterprise Risk Management (ERM) framework, the COSO 2013 Internal Control (IC) framework, and the COSO Fraud Risk Management Guide (FRMG).
The Chief Risk Officer (CRO) is struggling to define the boundaries and relationships between these frameworks for the executive team. The CRO notes that while some operational risks are being managed well, there is confusion about where anti-fraud controls fit within the broader enterprise strategy and daily financial reporting controls.
Based on the COSO guidance regarding the relationship among these frameworks, which of the following approaches represents the MOST accurate integration strategy for the CRO to present?
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Correct answer: A
The COSO guidelines establish that ERM is broader than internal control, focusing on risk responses in all aspects of business strategy and performance. Internal control is a subset and integral part of ERM. The FRMG is complementary to both, as fraud risk can impact all areas of accounting, financial, and non-financial operations. Therefore, the FRMG should be applied holistically across both the ERM and IC frameworks to address intentional deception.
graph TD A[Enterprise Risk Management] --> B[Internal Control] A --> C[Strategy & Performance] B --> D[Financial Reporting] B --> E[Operations] F[Fraud Risk Management] -.->|Overlays & Complements| A F -.->|Overlays & Complements| B - Question 2IntermediateSelect 2
Introduction to Fraud Risk Management · Five Principles Overview and Fraud Deterrence
The COSO Fraud Risk Management Guide, Second Edition, expands upon the traditional Fraud Triangle by utilizing the Fraud Pentagon. Which TWO of the following factors were added to Pressure, Opportunity, and Rationalization to complete the Fraud Pentagon? (Select TWO)
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Correct answers: C, E
The Fraud Pentagon expands the traditional Fraud Triangle by adding Arrogance and Competence. Competence refers to the perpetrator's ability to conceal their wrongdoing, override controls, and control the social situation to facilitate the scheme.
The Fraud Pentagon expands the traditional Fraud Triangle (Pressure/Incentive, Opportunity, Rationalization) by adding Arrogance and Competence. Arrogance reflects an attitude of entitlement where the perpetrator believes anti-fraud measures do not apply to them.
- Question 3Beginner
Introduction to Fraud Risk Management · Fraud Definition and Costs
When an organization suffers a fraud event, it incurs both direct and indirect costs. Which of the following is considered a significant indirect cost that often outweighs the immediate financial loss?
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Correct answer: C
While the stolen funds or assets represent the direct financial loss of a fraud event, the indirect costs—such as reputational damage, loss of stakeholder trust, decreased employee morale, and loss of competitive advantage—often have a much more devastating and long-lasting impact on the organization's viability.
- Question 4Intermediate
Introduction to Fraud Risk Management · Five Principles Overview and Fraud Deterrence
The COSO Fraud Risk Management Guide strongly emphasizes the concept of 'fraud deterrence.' Which of the following best describes how a comprehensive Fraud Risk Management Program achieves effective fraud deterrence?
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Correct answer: D
Fraud deterrence is achieved not just by having controls, but by making it known throughout the organization that a rigorous program is in place. When potential perpetrators understand that robust preventive and detective controls (including data analytics) exist, that investigations are swift, and that punishment is certain, it addresses the root causes and significantly deters fraudulent behavior.
graph LR A[Robust Controls] --> D[High Perceived Risk of Detection] B[Swift Investigation] --> D C[Certain Punishment] --> D D --> E((Effective Fraud Deterrence))
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