How employers put themselves at potential risk with reporting on issues that lead to financial risks

Sample Answer

Employers face significant potential risks when reporting on issues that lead to financial risks, primarily due to the impact inaccurate or misleading information can have on stakeholders, regulatory compliance, and internal decision-making. Here's a breakdown of these risks and ways to mitigate them:

How Employers Put Themselves at Potential Risk with Reporting on Issues that Lead to Financial Risks:

Regulatory Non-Compliance and Legal Penalties:

• Description: Financial reporting is subject to various legal and regulatory requirements (e.g., International Financial Reporting Standards (IFRS), specific national laws like Kenya's Companies Act No. 17 of 2015, which holds directors liable for false statements). Misstatements or omissions can lead to substantial fines, sanctions, and even criminal charges for the company and its directors.
• Risk Example: If an employer understates liabilities or overstates assets to present a rosier financial picture, they could face significant penalties from regulatory bodies.

Loss of Investor and Stakeholder Trust:

• Description: Investors, creditors, employees, and other stakeholders rely on accurate financial reports to make informed decisions. Inaccurate reporting erodes trust, making it difficult to secure funding, attract and retain talent, and maintain positive business relationships.Employers face significant potential risks when reporting on issues that lead to financial risks, primarily due to the impact inaccurate or misleading information can have on stakeholders, regulatory compliance, and internal decision-making. Here's a breakdown of these risks and ways to mitigate them: