THE CONCEPT OF RISK
Risk has been the subject of study by different scholars over the years with several meaning and definitions. But the most accepted definitions are that of J.E Banister and P.A Bawcutt (1981). They define risk as follows:
Risk is the object doubt concerning the outcome of a given situation.
Risk is the uncertainty as to the occurrence of an economic loss.
Risk is the combination of hazards.
Risk is the chance of loss.
Risk is the uncertainty of financial loss.
Risk is the uncertainty in respect of future earning, cash flow and the assets of undertaking.
Risk is the possible outcome which may occur at some future time.
Risk is the probability of adverse returns from investment.
However is can be insured in the insurance industry in order to reduced losses. Because the insurer does not eliminate loss and cannot stop disaster or misfortune from happening but helps to compensate the victim.
2.2 TYPES OF RISK
The following are some types of risk that can be insured. According to David L. Bickel Haupt (1974) these include;
Speculative Risk: This can occur as a result of gain or the possibility of loss. Many business risks fall into the category of speculative risk, such as risk associated with changes in customers taste, change of government policy, price of raw materials availability of foreign exchange etc.
Fundamental Risk: This arise from social, economic and political pressures occurring within the society and from purely physical phenomena that affects whole community. Such as technology, unemployment, war, inflation, political instability, flood, windstorms, drought volcanic, earthquakes etc.
Particular Risk: This are personal risk arising from individual event such as the burning of house, robbery of a bank and an act of personal negligence.
Systematic Risk: This type of risk affects all companies either big or small, as a result of the system in which the company operates. Its an uncontrollable risk which cannot be prevented from happening. Examples are interest rate, inflation rate, competition, legal environment, cultural environment, demand and supply etc.
Unsystematic Risk: This is an internal risk, that is peculiar to a particular companies. Example is fire disaster, fraud, strike, bank robbery etc.
2.3 SOURCE OF RISK
The following are some common source of risks. James S.T Satldra G.G and Robert E.H (2001) state some of those source of risk. These consist of:
Property Risk: Business that own rent or use property may be damaged, destroyed or stolen. If the damage is extensive, the business may be shut down temporarily thereby incurring a loss as a result of replacing the damage property.
Liability Risk: This occurs as a result of payment made to compensate injured parties as well as to punish those responsible for the injures, even when an individuals is eventually absorbed of its liability.
Financial risk: This is a risk that is speculative in nature and can impact on firm’s earnings. Examples of those financial risk include credit risk, foreign exchange risk, commodity risk and interest rate risk
OTHER SIMILAR ACCOUNTING PROJECTS AND MATERIALS