A financial risk assessment is a financial evaluation that measures the probability of a financial asset losing its value. This assessment focuses on deep diving into a company's financial readiness. It also considers other areas of a company that impacts its financial stability. The assessment helps in the timely identification of beneficial areas and those that are not, such that, necessary corrections can be made.
Some examples of financial risk assessment include: a. liabilities not recorded appropriately b. loan repayments not planned forc. expenses not accounted for in the P&L d. Difference between the process of maintaining financial statements vs. GAAP requirements
Why it matters
Financial risk assessment must be performed periodically by all types of companies. Some of the reasons why performing a financial risk assessment is needed for any business:1. Provide clarity on aspects that are working fine versus those that aren't2. To provide a solid backing for enhanced decision making3. To gauge financial risk4. To establish a strategic plan5. To work towards profitability6. Tp prepare to identify opportunities