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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Barolos Company manufactures laptop stickers for Italian sports teams. Barolo’s risk management team has identified the company’s top five inherent risks and plans to manage them using a typical ERM portfolio perspective (i.e., align the portfolio of residual risks with the company’s risk appetite). Specifically, the team has decided to accept inherent risk 2 (IR2) and inherent risk 3 (IR3) as they approximately offset each other. The team also decided to accept inherent risk 1 (IR1) because it is very close to the company’s risk appetite. In addition, the team decided to reduce inherent risk 4. Barolo’s risk graph shown below depicts its portfolio of risks after the team has implemented its risk responses.

Chapter 13, Problem 34E, Barolos Company manufactures laptop stickers for Italian sports teams. Barolos risk management team , example  1

Required:

Refer to Barolo’s risk graph and match the numbers (①–⑤) on the graph with the correct lettered descriptions (A–G).

Chapter 13, Problem 34E, Barolos Company manufactures laptop stickers for Italian sports teams. Barolos risk management team , example  2

To determine

Match the correct description for the figures represented in the given graph.

Explanation

Enterprise Risk Management:

Enterprise risk management is a process in which, business risks are maintained at a level decided by the management, so that the strategic plans of the organization are achieved. That is, risks are maintained at a level that satisfies both the risk category as well as objectives of the organization.

There are three types of responses that organizations may choose to deal with different types of risks. These are to accept, avoid, and reduce risks.

Description of the figures:

FiguresDescription
1.Residual Risk 4Inherent risk 4 is reduced so that it equates with risk appetite...

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