Business risk analysis, Auditing

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Business Risk Analysis

Business risk can be analyzed between external and internal risks:

External risks:

  • Changing legislation (e.g. minimum wage)
  • Changing interest rates (especially with highly geared companies)
  • Changing exchange rates
  • Public opinion, attitudes, fashions (e.g. environmental factors)
  • Price wars initiated by competitors (e.g. supermarkets)
  • Import competition (e.g. the textile trade)
  • Untried technologies and ideas (e.g. dot.com traders)
  • Natural hazards (e.g. fire or flood or effects of global warming)
  • Bad debts
  • Litigation
  • Environmental matters
  • Inflation
  • Political factors


Internal Risks:

Internal risks can also harm the company. These comprise:

  • Failure to modernize products, processes, labor relations, marketing resulting in loss of competitive edge.
  • Employees (e.g. ineffective recruitment or training policies)
  • Board members (e.g. ineffective corporate governance)
  • The process of dealing with suppliers or customers
  • Excessive reliance on a dominance chief executive (thereby weakening internal control)
  • Inadequate cash flow and the risk of corporate failure
  • Inappropriate gearing (resulting in a lack of financial efficiency)
  • Related parties resting in inappropriate terms of trading
  • Inappropriate acquisitions and poor future prospects
  • Overtrading resulting in cash shortages
  • Excessive reliance on one of a few products, customers, suppliers
  • Internal control weaknesses
  • Computer systems failure and loss of records
  • Fraud

 


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