ACCA Audit and Assurance (F8) Practice Exam

Which factor can lead to an increase in Business Risk?

1. Stable market conditions

2. Changes in operating environment

3. Consistent company policies

4. Reduction in personnel

The correct answer is: Changes in operating environment

An increase in business risk is often driven by changes in the operating environment. The operating environment encompasses a wide range of factors including economic conditions, regulatory changes, competitive pressures, and technological advancements. When these factors change, they can create uncertainties and challenges that affect a company's ability to achieve its objectives. For instance, a sudden economic downturn may reduce consumer demand, regulatory changes can impose additional compliance requirements, and new technologies can disrupt existing business models. These shifts can expose a company to new risks or amplify existing ones, leading to increased business risk. The company must adapt to this evolving landscape, which may require strategic changes and resource allocation adjustments. In contrast, stable market conditions, consistent company policies, and reduction in personnel typically do not contribute to increased business risk and can sometimes even serve to mitigate it.