In the Bhopal case, in evaluating its exposure to possible future liability due to technology failures, Union Carbide used which of the following concepts?

• A. Professional skepticism
• B. Business risk
• C. Cost-benefit analysis
• D. Rights Theory

Answer: (B)

The main idea being tested is viewing potential future liabilities as a business risk. When a company evaluates how possible technology failures could expose it to future costs—like lawsuits, cleanup expenses, fines, or settlements—it’s assessing the risk to its earnings, cash flows, and overall value. That perspective is a business risk approach: it looks at how uncertain events could impact the company’s financial position and continuity, and it drives how the company prepares with reserves, insurance, and contingency plans.

Professional skepticism is about auditors’ mindset when evaluating evidence, not about forecasting or managing future liabilities. Rights theory is an ethical framework focusing on respecting individuals’ rights, not on assessing or quantifying corporate financial risk. Cost-benefit analysis is a decision tool to weigh costs and benefits of particular actions; while it can inform risk responses, it doesn’t by itself describe the broader concept of assessing exposure to potential future liabilities as part of enterprise risk management.