Business risk usually occurs in one of four ways: strategic risk, compliance risk, operational risk, and reputational risk. B. (B) None of these answers. Economic risks. O A customer value proposition. Business risks. Hardy . -B.O.Wheeler. b) Both are equally risky for investors. C) observation of the entitys operations. Risks surround everything that a business big or small does. Risk A __________________ is an overthrow of your business goals and includes details on how you think your going to achieve them. For example, in the wine industry, there is a three-tier system of distribution that requires wholesalers in the U.S. to sell wine to a retailer (who then sells it to consumers). Business risk is the exposure a company or organization has to factor(s) that will lower its profits or lead it to fail. Business Risk Definition. Caused by human weakness and the unpredictability of employees and or customers. 1. In the technological age, the need for risk management has never been greater. When assessing risk, it is important to remember that. When starting a business, entrepreneurs face the risk that the business may NOT be successful. Which of the following is NOT one of the five basic responses to risk? Endnotes The following are common types of business risk. A medium-sized healthcare IT business decides to implement a risk management strategy. With a low debt ratio, when revenues drop the company may not be able to service its debt (and this may lead to bankruptcy). An attorney should be consulted when purchasing it. It lowers the cost of running a business. ces A website malfunctioning. Once the management of a company has come up with a plan to deal with the risk, it's important that they take the extra step of documenting everything in case the same situation arises again. 1. In this situation, a brand risks becoming non-compliant with state-specific distribution laws. The possibility of loss or failure inherited in conducting business. To calculate risk, analysts use four simple ratios: contribution margin, operation leverage effect, financial leverage effect, and total leverage effect. The following are common types of business risk. Using the example of the automobile manufacturer again, in an economic downturn, consumers do not have as much demand for the companies' products. Capital Money Real asset Efficient The first step that brands typically take is to identify all sources of risk in their business plan. 12 % b . However, there are ways to mitigate the overall risks associated with operating a business; most companies accomplish this through adopting a risk management strategy. How To Comply: A Four-Step Process 5. Which of the following statements is not true? Competitive Risk. 4. C) Inherent risk is inversely related to the amount of audit evidence whereas detection risk is directly related to the amount of audit evidence required. C) are inversely related to detection risk. Sometimes it is a company's top leadership or management that creates situations where a business may be exposed to a greater degree of risk. This risk arises from within the corporation, especially when the day-to-day operations of a company fail to perform. We have step-by-step Changes in the market that cause prices to up and down. Auditors frequently refer to the terms audit assurance, overall assurance, and level of assurance instead of, If planned detection risk is reduced, the amount of evidence the auditor accumulates will, Inherent risk is often high for an account such as. Risk can be minimized, but cannot be eliminated. Auditors begin their assessments of inherent risk during audit planning. When a company experiences a high degree of business risk, it may impair its ability to provide investors and stakeholders with adequate returns. A. The risk premium is the extra return above the risk-free rate investors receive as compensation for investing in risky assets. This can be done either before the business begins operations or after it experiences a setback. Question No :1 Which of the following is not a cause of Basic Business Risk? 75 % A deliberate product contamination risk is called ? False 6.) All of the following are types of price risk except A. commodity price risk. Which of the following should be undertaken in order to reduce a business's exposure to the risk of violating tax regulations? It is the possibility of some un-favourable occurrence. Finally, most companies adopt a risk management strategy. Compliance risk primarily arises in industries and sectors that are highly regulated. Businesses want to ensure stability as they grow. Textbook solution for Auditing: A Risk Based-Approach (MindTap Course List) 11th Edition Karla M Johnstone Chapter 4 Problem 3CYBK. A ________ risk represents an identified and assessed risk of material misstatement that, in the auditors professional judgment, requires special audit consideration. Any time a company's reputation is ruined, either by an event that was the result of a previous business risk or by a different occurrence, it runs the risk of losing customers and its brand loyalty suffering. A. Which of the following is not a feature of business?1) Forecasting ii) Risk and uncertainty iii) Policy mak Get the answers you need, now! Risk management is practiced by the business of all sizes; small businesses do it informally, while enterprises codify it. (a) Business risks arise due to uncertainties : A business cant have any control over future happenings due to uncertainty about future. B) Most auditors set a high inherent risk in the first year of an audit and reduce it in subsequent years as they gain more knowledge about the company. Business risk. ________ risk represents the auditors assessment of the susceptibility of an assertion to material misstatement, before considering the effectiveness of the clients internal control. But it will be there as long as you run a business or want to operate and expand. a) Debt is risky for investors while equity is risky for the firm. Large changes in customer demand Unstable selling price Uncertainty in input costs None of the given options Question No :2 In ____________ market stocks and bonds are traded. Which of the following will generally be considered a significant risk? Of the following, which one(s) fall(s) under business risk? What would you do in the following situation: You started a business and you've been running it successfully for a year and it's getting close to the break-even point. e) Risk classification, Risk identification, Initial Risk Assessment, Risk Response Development and Risk Response Control Question 25 TOGAF classifies risk in response to their likely effect and frequency. But it will be there as long as you run a business or want to operate and expand. These aren't just external risksthey may also come from within the business itself. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Inherent risk is ________ related to planned detection risk and ________ related to the amount of audit evidence. While companies may not be able to completely avoid business risk, they can take steps to mitigate its impact, including the development of a strategic risk plan. Which is a true statement about audit risk? Strategic risk arises when a business does not operate according to its business model or plan. For example, in 2012, the multinational bank HSBC faced a high degree of operational risk and as a result, incurred a large fine from the U.S. Department of Justice when its internal anti-money laundering operations team was unable to adequately stop money laundering in Mexico. Risk definition is - possibility of loss or injury : peril. If, for example, Walmart strategically positions itself as a low-cost provider and Target decides to undercut Walmart's prices, this becomes a strategic risk for Walmart. Price risk C. Pure risk B. Business risk can be influenced by multi-faceted factors. A) many auditors use broad and subjective measurement terms. C. stock market risk. When a company does not operate according to its business model, its strategy becomes less effective over time and it may struggle to reach its defined goals. Financial distress occurs when income flows fail to meet the required spending outflows owed to outstanding obligations or needs. B) obtaining clients agreement on the engagement letter. Economic Risk. Businesses face different types of risks. A) Planned detection risk and inherent risk have an inverse relationship. Avoid C. Mitigate D. Accept A contingency plan (to deal with issues as problems arise) is a vital component of risk Which of the following is not a primary consideration when assessing inherent risk? That is simply the nature of the business world. The risk can be higher or lower from time to time. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would. Degree of risk depends mainly upon the nature and size of business: For small scale business it is less and for large scale business it is more. When a business makes an investment, in a new asset or a project, the return on that investment can be affected by several variables, most of which are not under the direct control of the business. The second form of business risk is referred to as compliance risk. Business risk is any exposure a company or organization has to factor(s) that may lower its profits or cause it to go bankrupt. C) Audit assurance is the complement of acceptable audit risk. Which of the following is not considered part of business risk? Risk is an essential part of every business: No business can avoid the risk. Risk has always been intertwined with any type of business endeavor, and good business leaders have adapted to risk related to their business by understanding it and finding ways to combat it. A) The combination of performance materiality and the audit risk model factors determines planned audit evidence. the possibility of financial loss. A. Discuss water transportation labor . Risk. A. Process indicators: The risks inherent in the organizations strategy are not identified, sourced and mitigated. Business risk is the risk associated with running a business. The third type of business risk is operational risk. Which of the following is a correct relationship? the systematic process of managing an organization's risks to achieve objectives in a manner consistent with public interest, human safety, environmental needs, and the law. Which of the following statements regarding inherent risk is correct? How Enterprise Risk Management (ERM) Works, What You Need to Know About Financial Distress, Financial Risk: The Art of Assessing if a Company Is a Good Buy. Risk assessment procedures include inquiries of management and others by the auditor. Buying insurance helps businesses in which of the following ways? Understate revenues and overstate deductible expenses B. Which of the following would not help in assessing inherent risk during the planning phase? Which of the following answers does not come from the suggested classification system in TOGAF? B) In some cases, a lower acceptable audit risk may be more appropriate for one account than for others. Situations that can lead to financial gain, loss or failure. An employee accessing unauthorized information. Financial risk is the possibility of losing money on an investment or business venture. True B. 58 % c . Another way to think about business risk is the demand for a company's product. Auditors typically rely on internal controls of their private company clients. This system prohibits wineries from selling their products directly to retail stores in some states. Which one of the following is a method companies can use to manage political risk by incorporating risk into business strategies, a ploy known as adaptation? Understanding Business Risk . Following are cited some popular definition of the term business risk: (1) Risk is the chance of loss. 1. For more complex calculations, analysts can incorporate statistical methods. Every modern business, regardless of industry, faces a certain degree of risk. For example, the CEO of a company may make certain decisions that affect its profits, or the CEO may not accurately anticipate certain events in the future, causing the business to incur losses or fail. When taken together, the concepts of risk and materiality in auditing, D) measure the uncertainty of amounts of a given magnitude. The risk of material misstatement refers to. C) detection risk can only be determined after audit risk, inherent risk, and control risk are determined. Which of the following is not a commodity that water and rail competes to m As of 2007 , how many short tons were transported by water in the U . Multiple Choice O Products harming customers. S . After all, business risk isn't staticit tends to repeat itself during the business cycle. 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