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What risk management strategies might an Accounting Firm employ in the country of India in which...

What risk management strategies might an Accounting Firm employ in the country of India in which you plan to expand?

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Answer #1

The Accounting firm, in its plan to expand into India, can employ several strategies toward its Risk Management. A structured plan re the same is as below.

  • Strategic Risk ---- One major risk would be regarding the assessment of the market potential vis-à-vis the Growth and competition prospects in India. India is a vast, highly populous and fast changing land with an intense concentration of Accounting/Audit/Consultancy firms with all big players already being well established for a while. The scope and prospect for a new entrant needs to be carefully examined/ascertained as any probable withdrawal or exit can come at a substantial loss of money and reputation.

It is thus important that a proper feasibility study gets undertaken, deploying experts with relevant knowledge and skills before any commitment gets made.

  • Operational Risk ---- The Profitability from operations and the management approach/control aspects might well be substantially different from a typically western climate.

A thorough Profitability projection and analysis should be made and carefully vetted before investments get put in.

Further, the management style/attitude and general work culture of employees should be carefully monitored to mitigate operational risks arising therefrom.

  • Compliance Risk --- India is governed by a complex and elaborate set of laws and regulations which might differ from where the Firm’s HO is based. The firm would be at a serious legal/compliance risk if not taken due care re this and adopted suitable expertise to mitigate, if not avoid the same.

An local professional firm can be hired and due plans/structures can be discussed with them to ensure the compliance get duly taken care of. Even when the firm would become operational in India, a legal cell or a legal firm on a retainer-ship basis should form a part of the set-up to take care of this risk.

  • Financial Risk --- Elements as fast changing cost structure, inflation, tax rate changes, changes in the regulatory framework, collection/cashflow problems etc can pose a threat to the profitability, asset-worth or liquidity of operations.

A proper prior assessment of all such features alongwith a distinct plan to address the potential risk would be important to deal with this.

  • Reputation Risk ----- The required standards, market expectations and local aspirations of the new country will have to met. Any failure thereto can cause, apart from anything else, a loss of reputation which understandably has been earned by the firm over years of work.
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