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FRM Part II · FRM Exam Part II · Risk Reporting

An operational risk manager notices that business units submit risk and control self-assessment results that are consistently rated green, while internal audit findings and loss data show recurring control failures. Which reporting improvement BEST addresses this issue?

The best improvement is to reconcile self-assessment ratings with independent evidence such as loss events, KRIs and audit findings, and report discrepancies with second-line challenge. This corrects optimism bias while retaining business insight, unlike discarding the assessments or merely asking for conservatism.

  1. ARemove the self-assessment results from the board report altogether
  2. BReconcile self-assessment ratings with independent data such as loss events, KRIs and audit findings, and report the discrepancies with challenge from the second lineCorrect
  3. CAsk business units to rate themselves more conservatively without further review
  4. DReport only the audit findings and discard all other information

Explanation

Self-assessments are subjective and can be biased. Triangulating them with independent evidence and having the second line challenge them yields a more reliable picture and exposes inconsistencies. Dropping them loses business insight, and simply asking for conservatism has no verification.

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