Types of risk

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  • #247213

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    This forum is restricted to members of the associated course(s).

    Fujaira KP
    Participant

    Further financial risks can result from concentration of customers and receivables, lack of liquidity, and trading activities. The need to comply with accounting standards, financial reporting requirements, regulatory reporting require- ments, and tax regulations introduces important financial risks, as well.

     

    this is the explanation of financial risk.what is this concentraion of customer means

    how lack of liquidity become financial risk ?

    and also how compliance with account standards financial reporting requirements ……make financial risk??

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  • #247214

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    Fujaira KP
    Participant

    Regulations and the company’s capacity or willingness to comply.
    Supply chain disruptions such as lack of availability or inclement weather.

    this 2 are eg of external risk in textbook

    .how this supply chain become example of external.its under the control of managment right?

    #247220

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    Lynn Roden
    HOCK international

    Hello Fujaira KP,

    Concentration of customers can mean that a large percentage of a company’s customers share some characteristic, and if something happens that would affect all companies that share that characteristic, then this company’s business will be affected, maybe because those customers will stop buying, or maybe because they will buy but will not be able to pay. The characteristic might be that they are all in the same industry, it might be that they are all in the same country, or something else that could affect all of them negatively and in so doing, affect the company that is selling to them.

    Liquidity is the ability to pay bills as they become due. Lack of liquidity means the inability to pay bills when they are due.

    Compliance with new requirements creates costs. Compliance with accounting standards is a financial risk because it may mean a company needs to hire more accountants to keep up with new accounting requirements.

    Supply chain disruptions mean the company is not able to get the things it needs, especially raw materials, from its suppliers. If suppliers are not able to ship the raw materials to the company, the company cannot manufacture its product. Supply chain disruptions are not under the control of management. They are an external risk because the company cannot control what happens outside of its own organization, and suppliers’ inability to provide what the company needs happens outside of its own organization.

    Lynn

    #247256

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    Fujaira KP
    Participant

    Hai Lyn

    How this become external risk?-Regulations and the company’s capacity or willingness to comply. 

    #247258

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    Lynn Roden
    HOCK international

    Hello Fujaira KP,

    Regulations are outside the control of the company, so they and the conditions that result from them are an external risk. The company’s compliance with the regulations has costs, and since the regulations are outside the control of the company, the costs of compliance are also outside the control of the company. So the costs of compliance are an external risk. If the company chooses not to comply, it incurs additional risk because of fines that could be imposed on it by the regulatory authorities, or worse. Some regulations carry heavier penalties for non-compliance, even imprisonment.

    Lynn

    #247263

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    Fujaira KP
    Participant

    Ok .but why  company’s capacity external ?

    #247272

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    Lynn Roden
    HOCK international

    Hello Fujaira KP,

    Regulations create external risk. They are the source of the risk. So anything connected with regulations is part of that external risk.

    Lynn

    #247289

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    Fujaira KP
    Participant

    but if the company capacity itself is external risk?

    #247295

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    Lynn Roden
    HOCK international

    Hello Fujaira KP,

    As I said before, regulations are the source of the risk, and they are external. I do not think this is worth your spending much more of your time on.

    Lynn

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