Certified Government Financial Manager (CGFM) Practice Exam

Effective risk assessment is a critical component of internal control standards, emphasizing the importance of proactively managing potential risks that an organization may face. A proactive approach means not only identifying and analyzing risks but also implementing strategies to mitigate those risks before they escalate into significant issues. This perspective encourages ongoing evaluation and active planning to address emerging threats, as opposed to merely responding to risks reactively.

In contrast, identifying only external threats limits the scope of risk assessment, as organizations must also consider internal risks that can impact operations and outcomes. Assessing risks solely during the annual audit ignores the dynamic nature of risk and the need for continuous monitoring throughout the year. Additionally, disregarding minor risks can lead to larger problems down the line, as small issues can compound or escalate if not managed appropriately. Therefore, the focus on developing a proactive approach to managing potential risks aligns with best practices in effective risk assessment under internal control standards.