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Practice CPA®CPA BAR Practice Exam 3Question 22

Easy1 markMultiple Choice

Area I: Business AnalysisBusiness AnalysisRisk Management

CPA · Question 22 · Area I: Business Analysis

A company identifies a risk that a new competitor might enter the market. Management decides to launch a loyalty program to lock in customers. Under the COSO ERM framework, this response is best classified as:

Answer options:

A.

Avoidance

B.

Reduction (Mitigation)

C.

Sharing

D.

Acceptance

How to approach this question

Identify the action type. Avoid (stop activity), Reduce (take action to lower risk), Share (transfer to 3rd party), Accept (no action).

Full Answer

B.Reduction (Mitigation)✓ Correct

Implementing a loyalty program is an active step to reduce the likelihood of customer churn (impact of the risk). This is Risk Reduction.

Common mistakes

Confusing Reduction with Sharing.

Question 21 All questions Question 23

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