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ACCA Strategic Professional · Strategic Business Leader · Identification, assessment and measurement of risk

Kestrel Foods, a listed manufacturer, discovers that a supplier supplied contaminated ingredients, and social media posts about the incident are spreading rapidly. No product has yet been recalled and no sales losses have been recorded. Which description best classifies the principal risk the board now faces?

The main risk is reputational risk. Negative stakeholder perception of Kestrel Foods, driven by the contamination story, can harm the brand and future sales even before losses are recorded. It is company-specific rather than systematic, and it is not credit or interest rate risk.

  1. AReputational risk, because stakeholder perceptions of the company may damage its brand and future trading before any financial loss appearsCorrect
  2. BCredit risk, because the supplier may fail to pay amounts owed to Kestrel Foods
  3. CSystematic risk, because the problem affects all companies in the food sector equally
  4. DInterest rate risk, because falling sales will increase the cost of borrowing

Explanation

Reputational risk is the risk of damage to stakeholder perceptions and trust, which can precede and cause financial loss. The event is company-specific, so it is not systematic risk. Credit risk concerns counterparty non-payment, which is not the issue here.

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