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

Zenara Foods, a listed packaged-food company, discovers that a supplier has been using unsafe ingredients. No customers have yet been harmed and the facts are not public. The board is concerned that, if the story breaks, customers and retailers will lose trust in the Zenara brand. Which description of the risk to Zenara is most accurate?

The exposure is reputational risk. The danger is that stakeholders' perception of Zenara's brand deteriorates if the supplier's unsafe ingredients become public, reducing trust and future sales. It is specific to the company, so it is not systematic or credit risk.

  1. AReputational risk, because stakeholder perceptions of the brand could be damaged and affect future revenueCorrect
  2. BBusiness risk, because it arises only from the choice of products and markets
  3. CSystematic risk, because it affects all companies in the food sector equally
  4. DCredit risk, because the supplier may fail to pay amounts owed to Zenara

Explanation

Reputational risk is the danger that stakeholders' perception of an organisation deteriorates, damaging trust and future earnings. Here the threat comes from public exposure of a supplier failure and its effect on trust in the brand. Systematic risk is market-wide and unrelated to one firm's supplier issue.

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