Which of the following statements best describes the difference between risk appetite and risk tolerance?

Which of the following statements best describes the difference between risk appetite and risk tolerance?
A . Risk appetite applies to specific objectives, while risk tolerance refers to an organization’s general attitude toward risk,
B . Risk appetite refers to the degree of risk acceptance for a particular objective, while risk tolerance is one approach to risk management.
C . Risk appetite refers to an organization’s general level of acceptance, while risk tolerance is a more specific and subordinate concept.
D . There is no significant difference between the two terms.

View Answer

Answer: C

Explanation:

The statement that best describes the difference between risk appetite and risk tolerance is that risk appetite refers to an organization’s general level of acceptance of risk, while risk tolerance is a more specific and subordinate concept. Risk appetite is the broad-based amount of risk an organization is willing to accept in pursuit of its mission, while risk tolerance defines the acceptable level of variation that management is willing to allow for any particular risk as it pursues its objectives.

Reference: The Institute of Internal Auditors (IIA) – International Standards for the Professional Practice of Internal Auditing