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ACCA Applied Knowledge · Business and Technology · Social and demographic factors

A clothing company discovers that a supplier in another country uses unsafe working conditions. Social media coverage causes customers to boycott the brand. Which risk to the company does this situation most directly illustrate?

This illustrates reputational risk arising from changing social attitudes. Customers react to unethical supply chain practices and boycott the brand, damaging its image and sales. It does not involve currency movements, customer credit or borrowing costs.

  1. AReputational risk arising from changing social attitudesCorrect
  2. BExchange rate risk on overseas purchases
  3. CCredit risk on trade receivables
  4. DInterest rate risk on borrowings

Explanation

Public reaction to the supplier's conditions damages the brand through boycotts, which is reputational risk linked to social attitudes. The scenario gives no information on currency, receivables or borrowings, so the other risks are not illustrated.

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