Survey Says Boards Troubled by Reputation Risk

complianceweek

After financial risk, reputation risk is the biggest concern that keeps board directors awake at night, according to the latest poll from EisnerAmper. In its fourth annual survey of 230 board members from a variety of organizations, the audit firm found 73 percent of board directors said reputation risk is their biggest risk behind financial risk, which is a 19-percent increase in the number of board members who identified reputation risk as their highest concern the year before.

“Reputation risk really is the culmination of several risks, like regulatory risks, IT risks, and uncertainty around things like new accounting standards,” says Peter Bible, a partner with EisnerAmper. “Those collectively represent reputation risk.” Under reputation risk, board members said they are most concerned about product quality, liability and customer satisfaction; public perception and brand; and integrity, fraud, ethics and the Foreign Corrupt Practices Act.

Regulatory and compliance risk came in 20 percentage points below reputation risk in the EisnerAmper survey. Their biggest concerns surround accounting standards, taxes, and implications of Dodd-Frank. With respect to accounting uncertainty, boards are waiting for final word on how they will be required to handle a number of key changes that are materializing around revenue recognition, financial instruments, impairment, and lease accounting. The Financial Accounting Standards Board is in the latter stages of making major changes to those accounting standards, but their timing is still undetermined. They also await word on when, whether, and how they might be required to learn and adopt International Financial Reporting Standards.

Steven Kreit, a partner in EisnerAmper, said in a statement social media exacerbates all of the major risk categories that the survey tracks, such as financial, regulatory and compliance, fraud, privacy, and data security. “Social media’s immediacy turns routine challenges into enterprise risks, and boards need to be ahead of the curve on digital risk management to understand these threats,” he says.

The full scope of the survey demonstrates the extent to which boards are feeling overwhelmed by regulation and various risks, says Bible. “When is enough too much?” he asks. “We keep adding layers and layers of compliance and complexity to the existing books. We are seeing it hit directors. No one person can possibly understand everything that’s required.”

This article originally appeared on complianceweek

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