Certified Internal Auditor (CIA) Part 1: Business Acumen — Question 161

An organization’s board has approved an expansion plan into a new market. The board acknowledged that if the expansion is not successful, the organization would encounter large monetary losses consisting of legal fees, research and development costs, rent expenses, and labor fees. Which of the following has the board approved?

Answer options

• A. The risk response.
• B. The risk tolerance.
• C. The residual risk.
• D. The inherent risk.

Correct answer: B

Explanation

The board has approved the risk tolerance, which is the level of risk the organization is willing to accept in pursuit of its objectives. The other options do not fit; the risk response pertains to how to manage identified risks, residual risk is the remaining risk after management actions, and inherent risk is the level of risk before any controls are applied.