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FREMONT, CA: Nowadays, organizations are exposed to a high degree of compliance risk. As stakeholder expectations increase and modern technologies are introduced in the market, compliance risk is increasing day by day. The threat posed to an organization’s financial status or reputational level is called compliance risk.
How do compliance risk assessments differ?
To identify different types of organizational risk, all the organizations conduct assessments. They can easily find the strategic, operational, financial, and compliance risks by conducting enterprise risk assessments. Other organizations go for internal audit risk assessments to consider financial statement risks and other compliance risks. Both of the risk assessments are meant to identify compliance risks, neither of them is created to identify legal or regulatory compliance risks correctly.
Understanding top compliance risks
If any firm wants to understand the full range of its risk exposure, like likelihood a risk may occur, its reasons, its impact, so they have to rely on the compliance risk assessment. A compliance risk assessment also helps organizations prioritize risks, map them to the applicable risk owners, and effectively allocate resources to risk mitigation.
How to apply the methodology to conduct the risk assessment
All the organizations should use the different objective methodology to assess the potential impact of each risk can help the firm understand its inherent risk exposure. And when organizations identify inherent risk, they should consider key risk drivers that can be organized into the following four broad categories:
• Legal impact: It is a legal action taken against the firms or the workers that could result in penalties, fines, imprisonment, or product seizures.
• Business impact: Some unfavorable events like embargos or plant shutdowns that could significantly disturb the firm’s ability to operate.
• Reputational impact: Some harmful incidents can bring a bad reputation to the organizations. Things like wrong social media discussion, bad press, decreased employee morale, and loss of customer trust can cause severe damage to the firms.