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Practice CPA®CPA BAR Practice Exam 2Question 17

Hard1 markMultiple Choice

Area I: Business AnalysisBARArea IESG

CPA · Question 17 · Area I: Business Analysis

A multinational corporation is assessing ESG-related risks using the COSO ERM framework. The company identifies that changing weather patterns could disrupt its supply chain in Southeast Asia. This is an example of which type of risk?

Answer options:

A.

Transition Risk

B.

Physical Risk

C.

Reputational Risk

D.

Litigation Risk

How to approach this question

Distinguish between Physical (weather, sea level) and Transition (policy, market, tech) risks.

Full Answer

B.Physical Risk✓ Correct

B

Physical risks are those resulting from climatic events, such as storms, floods, and droughts, which can damage assets or disrupt supply chains.

Common mistakes

Confusing physical risks with transition risks (regulatory changes).

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