ACCA Strategic Professional · Strategic Business Leader · Identification, assessment and measurement of risk
Hartwell Pharma sells medicines in 40 countries. Its board is assessing the risk that a regulator in one country withdraws its licence after a compliance breach, forcing it to stop sales there. Which classification and implication are most appropriate?
This is compliance or regulatory risk. It arises from breaching rules set by a regulator, and the board should assess both the likelihood of a breach and its impact, including penalties, licence loss and forgone sales in that country.
- ACompliance (regulatory) risk, assessed by considering the likelihood of breach and the size of the penalty and lost salesCorrect
- BLiquidity risk, assessed by comparing current assets with current liabilities
- CInterest rate risk, assessed by the duration of borrowings
- DStrategic risk, which cannot be assessed because it is non-financial
Explanation
The risk arises from breaching laws or regulations, so it is compliance or regulatory risk. It can still be assessed by likelihood and impact, including fines and lost revenue. Non-financial risks are not unassessable, which rules out the final option.
Did you get it right without looking?
One question tells you little. A timed set on Identification, assessment and measurement of risk shows your real accuracy, how long you take and where you lose marks.
More Identification, assessment and measurement of risk questions
- Kestrel Foods plans to rank its risks on a two-by-two grid. A supplier failure is judged to be unlikely to happen but would halt production …
- Marlow Pharma's audit committee observes that before any controls, the risk of product contamination is rated very high. After installing au…
- Zentara Foods is assessing a supplier-failure risk. Management rates the likelihood as 'possible' and the impact on production as 'major' us…
- Calder Retail's directors discuss a possible new competitor entering its market. One director says the risk is dangerous because it could cu…
- Brightwater Utilities is assessing its risk profile. Its regulated water pricing means revenues are largely fixed by the regulator, but it h…
- Karel Mining's board is described as risk seeking. It has just approved entry into an unstable region with high expected returns, though its…