The probability and consequences of failing to comply with laws, regulations, or ethical standards applicable to the industry describes which risk?

The probability and consequences of failing to comply with laws, regulations, or ethical standards applicable to the industry describes which risk?

• A. Consequence
• B. Audit
• C. Environmental risk
• D. Compliance risk

Answer: (D)

Compliance risk describes the probability and consequences of failing to comply with laws, regulations, or ethical standards that apply to the industry. This risk matters because noncompliance can lead to fines, sanctions, legal liability, business disruption, and damage to reputation. The other options don’t capture both the likelihood of noncompliance and its potential impact: a consequence is only the outcome, an audit is a process to assess controls, and environmental risk focuses on environmental issues rather than regulatory or ethical compliance.

Compliance risk describes the probability and consequences of failing to comply with laws, regulations, or ethical standards that apply to the industry. This risk matters because noncompliance can lead to fines, sanctions, legal liability, business disruption, and damage to reputation. The other options don’t capture both the likelihood of noncompliance and its potential impact: a consequence is only the outcome, an audit is a process to assess controls, and environmental risk focuses on environmental issues rather than regulatory or ethical compliance.