ACCA Report
The way in which companies report the risks they face needs to improve and move away from being too bland, too generic, too wordy and too biased on the positive, says a new report from ACCA (the Association of Chartered Certified Accountants).
Reporting Risk, compiled from a range of interviews with senior industry figures over the course of a year, says that users, preparers and advisers in risk reporting overwhelmingly agree that risk reporting needs to improve.
But there is currently disagreement over how best to balance the needs of investors and other users of reports, against what organisations are willing to disclose which won’t give competitors an advantage and will not alarm stakeholders.
While the report accepts that risk reporting is still evolving, it says that risk information in current reports is either difficult to find or is too unspecific to be of significant use. Critical users argued that risk reports are too generic, are bland, too verbose and are biased towards the positive.
Ewan Willars, Director of Policy with ACCA, said; ‘There are concerns that risk-reporting is currently seen as being ‘tick-box’ and process driven, with organisations reluctant to be frank. There was also felt to be little or no challenges from boards, auditors or investors about the potentially damaging ‘what-ifs’ which could destroy businesses.
‘Report users we surveyed, including analysts, called for risk reports to clearly identify key risks faced by a company, with an explanation of why management believes these risks to be critical and what they are doing to mitigate the risks. A good risk report should identify new and emerging risks and explain how management assesses risk throughout the year.
‘Our report concluded that proactive involvement by risk report users can only encourage better practice. Good risk reporting, in turn, gives investors greater confidence.
‘We believe that greater disclosure of risk is not a threat – but a chance to demonstrate the strength of the company’s controls and management. It is also critical that the conversation about risk reporting continues as that will help to improve the quality of those reports’ said Ewan Willars.
Source: ACCA – ACCA Report
