Prevention is better than suffering in the loss

Introduction
Legal risk is the potential of losses due to regulatory or legal action that can arise because of an individual's or corporation's actions, inaction, products, services, or other events. Firms mainly employ people experienced in litigation risk analysis to identify key areas where the litigation risk is high and hence undertake appropriate measures to limit or vanish those risks.

Types of legal risk in a business:

1. Regulatory risks and Contractual risk - Risks arising from laws and regulations that drastically affect the business are known as regulatory risks and Risks which are incurred due to failure or negligence in fulfilment of contractual liabilities are called Contractual Risk.
    
2. Compliance risk - Risks due to non-compliance with internal policies, statutes, financial forfeiture etc applied to any business organisation is Compliance risk. Firms face trouble when they fail to act according to industry laws and internal policies. It is also called integrity risk.
    
3. Dispute risk and Reputational risk - Dispute risk is caused when due to interruption by the stakeholders, partners, customers of the business and Risks arising due to the involvement of employees or other parties like suppliers is called Reputational Risk.

Frauds and their types in legal risk:

1. Assets and Data theft frauds- These frauds are related to the theft of private data which may be used for destroying the reputation or goodwill of an organization.
   These frauds may put the organisation in a precarious condition that may result in action against the the organisation along with penalties.
    
2. Accounting frauds, Bribery and Corruption- Accounting frauds are manipulation of financial statements intended to create a fake high profile position of the company. A fabricated statement of finance states the failure of the management causing greed among the employees. Bribery and corruption also arise out of the unsatisfied needs of the employees.

Litigation in Risk Analysis

Litigation risk is the risk of getting legal action. It analysis the chance or a possibility that legal action will be taken against the company in the future from a certain contract or a transaction. It is a method to systematically understand the uncertainties in the litigation process.

Eradication of litigation risk

A litigation risk can arise from a contract or a transaction, necessary measures are taken to eliminate the litigation risk. It is an ideal practice to leave that particular contract or transaction to avoid any unnecessary complications.

The accounting of the litigation risk
As per Generally accepted accounting practice (GAAP) and International Accounting Standards (IAS), it is vital for companies to create a provision for the litigation risk and incorporate it in their financial statements.

Litigation risk assessment

It provides the management of the company with the timely assessment of the upcoming risk of a legal action along with future financial problems of the company because of it. In the litigation risk assessment, these components are generally included:

• Course of action of a Litigation
• Case Status
• Legal issues, its assessment and analysis
• Projection of legal budget of the case
• Showcase of Result of the case

Conclusion
Risks arising out of any legal workings are a threat to numerous organisations and individuals. Hence proper check and precautions are a pre-requisite because of any legal process.

References:

1. The 5 most common legal risks that can impact your business, -https://www.lexology.com/library/detail.aspx?g=1098aa11-e583-413a-8802-d2533ce87f69,
2. John Spacy, What is Legal Risk, available at https://simplicable.com/new/legal-risk.
3. Insights into fraud risk analytics, available at https://www2.deloitte.com/us/en/pages/advisory/articles/five-insights-into-fraud-risk-analytics.html