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Risk Assignment

1343 words - 6 pages

QUESTION 1.1
Quality Control Risk
Definition:
A speculative (possibility of a positive or negative outcome; not a “pure risk”) uncertainty associated with relying on the quality controls of outsourced supplier.
Application:
There is a risk that Bulldog Trailers Ltd may obtain inferior quality “extras” from suppliers , should the suppliers change their strategy in future and decide reduce their input costs to survive possible recessionary times. (NB: Made those words bold to show my understanding of how risk relates to an uncertainty)
Bulldog Trailers Ltd has no quality control over the “extras” sourced from external suppliers. This is because the “extras” require specialised ...view middle of the document...

Regulatory risk
Definition: A pure uncertainty linked with not complying with legislative requirements.
Application: There is a risk that Bulldog Trailer Ltd may not comply with the JSE listing requirements such as maintaining certain profitability levels and producing integrated reports. This may result in penalties imposed which will pose a threat to company cash flows. The company is relatively new (established in 1998), so preserving and reinvesting its cash flows is key to its survival.
Security Risk
Definition: A speculative uncertainty associated with forming electronic links (via intranet) with suppliers for mutual benefit. Electronic Data Exchange achieves a paperless system of invoicing, billing and payment of transactions between companies.
Application: There is a risk that the authorised “extras” suppliers may create fraudulent invoices for payment by Bulldog Trailers Ltd.
Technology Risk
Definition: A pure risk regarding the uncertainty surrounding the continuous, timely and accurate functioning of electronic information management systems.
Application: Bulldog Trailer’s Ltd faces the risk of possible data corruption due the on-going load shedding. Sporadic surges in electrical current may produce high voltages that affect the transmission of data. This may result in transactions that are not processed fully or are duplicated. This will increase the administrative burden on the company, and may lead to non-compliance with legislation if omissions go undetected.eg. Value Added Tax consequences not taken into account appropriately.
Currency Risk
Definition: Risk associated with the uncertainty around changes in relative exchange rates. There are three types of currency risk namely: Transaction Risk, Translation risk and Economic Risk. Bulldog Trailers Ltd faces Transaction Risk and Economic Risk.

Transaction Risk
Definition: A pure risk of adverse exchange rate movements during normal trade, between overseas customers, suppliers and a locally based company.
Application: Bulldog Trailers Ltd retains the currency risk through invoicing its export sales in Dollars. This is however hedged through the use of forward contracts based on The Financial Controllers’ judgement of what he deems an unacceptable exposure to the US Dollar. There is a risk of the financial controller’s risk appetite not being aligned with the company. The audit committee may not have the same specialised knowledge required to challenge his risk assessments. This may have a negative impact on the stability of profits and the solvency of the company.
Economic Risk
Definition: A long term, speculative risk of foreign exchange movement on the value of the worth of the organisation.
Application: 40 % of Bulldog Trailers Ltd sales are in the United States of America. The company may decide to gradually increase its market presence abroad as part of a long-term strategy. There is a upside risk of increasing the company’s value in future...

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