RSK2601 – Memo – May/June 2017 P2 Examination
Questio Answe Explanation
n r
1 1 The benefits of ERM include the following:
• Increase in the likelihood of a business realizing its objectives
• Build confidence in stakeholders and the investment community
• Comply with relevant legal and regulatory requirements
• Align risk appetite and strategy
• Improve organizational resilience
• Enhance corporate governance
• Embed the risk process through the organization
• Minimize operational surprises and losses
• Optimize allocation of resources
• Identify and manage cross enterprise risks
• Link growth, risk and return
• Rationalize capital
• Seize opportunities
• Improve organizational learning
2 2 The board’s role is to steer the corporation towards corporate governance policies
that support long-term sustainable growth in shareholder value.
3 4 Risk management framework: A basic conceptual structure used to address the
risks faced by an organisation. Its purpose is to assist an organisation in
integrating risk management into its management process so that it becomes a
routine activity.
4 3 ERM is composed of seven elements namely: corporate governance, internal
control, implementation, risk management framework, risk management policy,
risk management process and sources of risk.
5 4 Risk taking: The tendency to engage in behaviours that have the potential to be
harmful yet at the same time provide the opportunity for some kind of outcome
that can be perceived as positive.
6 1 The King II Report moved away from the single bottom-line principle (i.e. profit
for shareholders) to a triple bottom-line principle,
7 4 Impacts the following business areas:
Employing assets efficiently
Attracting lower-cost capital
Meeting social obligations:
Overall performance:
8 3 Internal audit should follow a risk based approach to its plan
9 4 Investors are willing to pay a premium for good governance for three reasons.
They believe that the company will perform better over time, which will mean
higher share prices.
It is a way of reducing risk by either avoiding it altogether or by coping better
with adverse events.
The focus on corporate governance is a trend, but the reality is that no one
wants to be left behind.
, RSK2601 – Memo – May/June 2017 P2 Examination
10 3 Gap analysis: A Gap analysis can be used to identify the main risks linked to a
certain activity or project of the business. The method will assist the business to
establish where the gap is in the risk associated within the activity/project so that
pro-active or reactive risk measures can be established.
11 4 Purpose of the act is to:
Promote compliance with the Bill of Rights as provided for in the
Constitution, in the application of company law
Promote the development of the South African economy by: encouraging
entrepreneurship and enterprise efficiency creating flexibility and simplicity
in the formation and maintenance of companies encouraging transparency
and high standards of corporate governance as appropriate, given the
significant role of enterprises within the social and economic life of the
nation
Promote innovation and investment in the South African markets
Reaffirm the concept of the company as a means of achieving economic and
social benefits
Continue to provide for the creation and use of companies, in a manner that
enhances the economic welfare of South Africa as a partner within the global
economy
Promote the development of companies within all sectors of the economy,
and encourage active participation in economic organisation, management
and productivity
Create optimum conditions for the aggregation of capital for productive
purposes, and for the investment of that capital in enterprises and the
spreading of economic risk
Provide for the formation, operation and accountability of non-profit
companies in a manner designed to promote, support and enhance the
capacity of such companies to perform their functions
Balance the rights and obligations of shareholders and directors within
companies
Encourage the efficient and responsible management of companies
Provide for the efficient rescue and recovery of financially distressed
companies, in a manner that balances the rights and interests of all relevant
stakeholders
Provide a predictable and effective environment for the efficient regulation
of companies.
12 2 The Monte Carlo simulation is a method used by a business to evaluate the effect of
uncertainty on a planned activity in a range of situations and uses random numbers to
sample from a probability distribution. A business can use this method to evaluate
duration, demand or throughput and costs. Refer to par. 11.8.5 of the prescribed book
to understand how Monte Carlo simulation, percentiles and correlations work, as well
as the benefits of the Monte Carlo simulation method.
13 1 Risk response flow chart: An illustration of the decision options made to arrive at
the desired risk response category
Questio Answe Explanation
n r
1 1 The benefits of ERM include the following:
• Increase in the likelihood of a business realizing its objectives
• Build confidence in stakeholders and the investment community
• Comply with relevant legal and regulatory requirements
• Align risk appetite and strategy
• Improve organizational resilience
• Enhance corporate governance
• Embed the risk process through the organization
• Minimize operational surprises and losses
• Optimize allocation of resources
• Identify and manage cross enterprise risks
• Link growth, risk and return
• Rationalize capital
• Seize opportunities
• Improve organizational learning
2 2 The board’s role is to steer the corporation towards corporate governance policies
that support long-term sustainable growth in shareholder value.
3 4 Risk management framework: A basic conceptual structure used to address the
risks faced by an organisation. Its purpose is to assist an organisation in
integrating risk management into its management process so that it becomes a
routine activity.
4 3 ERM is composed of seven elements namely: corporate governance, internal
control, implementation, risk management framework, risk management policy,
risk management process and sources of risk.
5 4 Risk taking: The tendency to engage in behaviours that have the potential to be
harmful yet at the same time provide the opportunity for some kind of outcome
that can be perceived as positive.
6 1 The King II Report moved away from the single bottom-line principle (i.e. profit
for shareholders) to a triple bottom-line principle,
7 4 Impacts the following business areas:
Employing assets efficiently
Attracting lower-cost capital
Meeting social obligations:
Overall performance:
8 3 Internal audit should follow a risk based approach to its plan
9 4 Investors are willing to pay a premium for good governance for three reasons.
They believe that the company will perform better over time, which will mean
higher share prices.
It is a way of reducing risk by either avoiding it altogether or by coping better
with adverse events.
The focus on corporate governance is a trend, but the reality is that no one
wants to be left behind.
, RSK2601 – Memo – May/June 2017 P2 Examination
10 3 Gap analysis: A Gap analysis can be used to identify the main risks linked to a
certain activity or project of the business. The method will assist the business to
establish where the gap is in the risk associated within the activity/project so that
pro-active or reactive risk measures can be established.
11 4 Purpose of the act is to:
Promote compliance with the Bill of Rights as provided for in the
Constitution, in the application of company law
Promote the development of the South African economy by: encouraging
entrepreneurship and enterprise efficiency creating flexibility and simplicity
in the formation and maintenance of companies encouraging transparency
and high standards of corporate governance as appropriate, given the
significant role of enterprises within the social and economic life of the
nation
Promote innovation and investment in the South African markets
Reaffirm the concept of the company as a means of achieving economic and
social benefits
Continue to provide for the creation and use of companies, in a manner that
enhances the economic welfare of South Africa as a partner within the global
economy
Promote the development of companies within all sectors of the economy,
and encourage active participation in economic organisation, management
and productivity
Create optimum conditions for the aggregation of capital for productive
purposes, and for the investment of that capital in enterprises and the
spreading of economic risk
Provide for the formation, operation and accountability of non-profit
companies in a manner designed to promote, support and enhance the
capacity of such companies to perform their functions
Balance the rights and obligations of shareholders and directors within
companies
Encourage the efficient and responsible management of companies
Provide for the efficient rescue and recovery of financially distressed
companies, in a manner that balances the rights and interests of all relevant
stakeholders
Provide a predictable and effective environment for the efficient regulation
of companies.
12 2 The Monte Carlo simulation is a method used by a business to evaluate the effect of
uncertainty on a planned activity in a range of situations and uses random numbers to
sample from a probability distribution. A business can use this method to evaluate
duration, demand or throughput and costs. Refer to par. 11.8.5 of the prescribed book
to understand how Monte Carlo simulation, percentiles and correlations work, as well
as the benefits of the Monte Carlo simulation method.
13 1 Risk response flow chart: An illustration of the decision options made to arrive at
the desired risk response category
