An exposure is the potential financial effect of an event multiplied by its probability of occurrence. There are eight types of exposure which are excessive cost, deficient revenue, loss of asset, inaccurate accounting, business interruption, statutory sanctions, competitive disadvantage and also fraud and embezzlement.
o Excessive cost
Excessive cost reduces profits. Every profits made by an organization is potentially excessive.
o Deficient revenues
Deficient revenues reduce profits. Bad debts expense on credit sales may be excessive.
o Loss on assets
Asset may be lost due to natural disaster, theft and act of violence. An organization custody of a large quantity of assets, all of which is subject to loss.
o Inaccurate accounting
Accounting policies and procedures may be error-prone, inappropriate or significantly different from those that are considered to be generally acceptable. Error may include valuation, timing or classification of transactions.
o Business interruption
Business interruption may consist of a temporary suspension or ultimately the termination of operation and end of organization.
o Statutory sanction
Statutory sanctions include any penalties that may arise from judicial or regulatory authorities who have jurisdiction over an organization and its operation.
o Competitive disadvantage
Competitive disadvantage is the inability of an organization to remain viable in the market place. It might result from any combination of the previous exposures and also might result from ineffective management decisions.
o Fraud and embezzlement
Fraud is the international perversion of truth in order to induce another to part with something of value or surrender a legal right. Embezzlement occurs when assets are fraudulently appropriated to one’s own use. Fraud and embezzlement may be perpetrated by outsiders against an organization or by insiders within the organization.
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