Chapter 4 - Reputational Risks Flashcards
What is reputational risk?
Reputation is the opinions people have and communicate about something, so reputational risk is the risk that people will have a negative opinion of an organisation and share that opinion with other people?
What are the various sources of reputational risk?
Employees
Management
Accounting
Fraud
Bribery and corruption
Transfer pricing
Cyber security
Data protection
Unethical behaviour
What is ethics?
Moral principles that govern a person’s behaviour or the conducting of an activity
What is business ethics?
CSR, sustainability
Miss-selling, misleading advertising
Mistreatment of staff
Bribery and corruption
What is personal ethics?
Conceptual framework - principles, threats, safeguards
How is ethics a source of risk?
Reputational damage
Fines/discipline
May affect chances of winning major contracts
What are the five fundamental principles?
Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour
What is integrity?
Be straightforward and honest
What is objectivity?
not allow bias, conflict of interest or undue influence of others to override professional or business judgements
What are the categories of threats?
Financial self-interest threat
Self-review threat
Advocacy threat
Familiarity threat
Imtimidation threat
Adverse interest threat
What is the advocacy threat?
Threat that a professional accountant will promote a client’s position to the point that the professional accountant’s objectivity is compromised
What are safeguards?
Actions or other measures that may eliminate threats or reduce them to an acceptable level
What are the safeguards created by the profession, legislation or regulation?
Educational, training and experience requirements for entry into the profession
CPD requirements
Corporate governance regulations
Professional or regulatory monitoring and disciplinary procedures
External review by a legally empowered third party
What are the safeguards in the work environment?
Firm-wide safeguards, like internal policies
Engagement-specific safeguards
What is CSR?
Corporate social responsibility relates to responsibility the business feels it owes to ‘society’
Why is CSR important?
Benefit to an organisation and a risk
Done well it can lead to better relations with external stakeholder
Lead to competitive advantage
Excessive CSR can be viewed as detrimental to shareholders wealth
How do we manage reputational risk?
Governance
Employee Relations
Policy framework
Environmental awareness
Risk sensing tools
Risk professional
How do we respond in a crisis?
Complete prevention is impossible
Detection and response are key
Clear escalation policy, well communicated
Scenario planning
