US CMA Part 2 · Chapter 7 · Question 3 of 15
Which statement best distinguishes risk appetite from risk tolerance?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Risk appetite is the broad amount of risk an organization is willing to accept in pursuit of value; risk tolerance is the acceptable variation in performance around specific objectives
Explanation
Risk appetite is a high-level, organization-wide statement, set by management with board oversight, of the types and amount of risk the entity is willing to accept in pursuit of its mission and value. Risk tolerance (the acceptable variation in performance) is more granular and relates to particular objectives or metrics. Risk before and after controls describes inherent and residual risk.
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