business risk and controls, Auditing

What is business risk and what controls should organizations have in place?

 Business Risk and Controls

Business or operational risks related to the activities carried out within organization, arising from structures, system, people, products and processes. Business or operational risks include business interceptions, errors or omissions by employees, product failure, health and safety, failure of IT system, fraud, Loss of key people, litigation. Loss of suppliers etc. These are generally within the control of organization through risk assessment, risk management policies including internal control and insurance

In Banking, operational risk has a particular meaning as defined by Based Committee on banking supervision, operational risk is defined as the risk of loss resulting from inadequate or failed internal process, people and system or form external events. Their definition includes legal risk but exclude strategic and reputational risk operational risk, which is largely subjective in distinguished from the more quantifiable credit, liquidity interest rate and market risks.

The most significant business risks are focused on strategy the business adopts including concentration of resources, mergers and acquisition and exit strategies, planning and benchmarking procedures are also important. Organizations also need to guard against risk that business operations are not aligned to its strategic goals.

Relating with stakeholders will also have a significant impart upon business risks because of consequences of non cooperation e.g. investors not contributing new funds, suppliers not delivering on time, employers disrupting production and ultimately of course customers not buying goods and services organization must be aware of key factors that may lead to problems in relation with stakeholders.

a)  Investors will be concerned with financial returns, accuracy and timeliness of information and quality of leadership.

b) Relation with suppliers and employees will be influenced by the terms and conditions of business with employees, the organization also need to consider whether they have appropriate knowledge and attitude.

c) Customers will obviously be influenced but the level of customer service also product safely issues and perhaps whether organization is ethics in matters such as marketing practices.

Other factors contributing to business risk will include.

  1. The type of industries/markets within which business operates.
  2. State of economy
  3. Actions of competitors and possibility of substitutes
  4. Introductory and declining stage of products life cycle investors risk
  5. Dependence upon inputs with fluctuating prices e.g. oil, wheat, etc.
  6. Level of operating gearings.
  7. Flexibility of production process to adopt to different specifications and products
  8. Organization research and development capacity

There may be little management can do about some of these risks, they are inherent in business activity. However strategic diversification can contribute substantially to reduction of many business risks.

FUNDAMENTAL RISKS

Financial risks include risks relating to structure of finance the organizations has, in particular the risks relating to the mix of equity and debt capital also whether organization has an insufficient long term capital base for the amount of trading it is doing organization also consider risk of fraud and mistake of financial resources, other short tem financial risk including

  1. Credit risks
  2. Liquidity Risks
  3. Cash management risks

Long term risks including currency and interest rate risks and currency risks include

  1. Transaction risk
  2. Translation risk
  3. Economic risk

REPUTATIONAL RISK

Risk of loss of reputation caused as a result of adverse consequences of other risks.

Posted Date: 3/14/2013 2:34:01 AM | Location : United States







Related Discussions:- business risk and controls, Assignment Help, Ask Question on business risk and controls, Get Answer, Expert's Help, business risk and controls Discussions

Write discussion on business risk and controls
Your posts are moderated
Related Questions
audit procedures in business combination conserning Goodwill

Issues for Finance Leases For the leases such have been categorize as finance leases, a model uses to be checked for the following issues: (i) Check technique used to split

Attempts to define True and Fair It must be concluded that there has been slight attempt precisely to define fair and true. The Companies Act needs an auditor to report in

Judgmental Sampling The Judgement sampling is where, auditor using his own experience and awareness of the client's business and situations selects the sample to be tested with

Subsequent Events - Audit Process IAS 10 Events after the Balance Sheet Date prescribes the accounting for, and disclosure of, events than the balance sheet date. Events th

Existence - Plant and Machinery However this should generally be checked through physical inspection, so a problem arises.  Items of machinery and plant can be numerous mobile

Planning for Stock taking Stock taking should be planned well in carried out and advance carefully and systematically through persons fully informed of the duties involved. Th

Sufficiency of audit evidence The audit evidence should in total enable the auditor to form an opinion on the financial statements. Sufficiency is a measurement of the quantity

Pension Funds - Specialized Audit Situation Pension funds are set up through companies or another organization: (a)  To retired employees to administer the pension payable

Cost and Authorization - Auditing Process The cost of building and land acquired while the year should be vouched to suitable documentation.These are contract of sale, surveyo