Better risk reporting can contribute to
greater financial stability, but can never prevent business
failure, according to a report from the Institute of Chartered
Accountants in England & Wales (ICAEW).
Following ICAEW’s 2010 report, which
identified potential ways of improving the way banks present risk,
this year’s report warned against unrealistic expectations as to
what it can achieve.
The report highlights seven principles to help
improving risk reporting including:
- Providing information that allows users to
make their own assessment of risk; - Focusing on quantitative information rather
than long, descriptive risk lists; - Integrating information on risk with other
disclosures; - Thinking beyond the annual reporting cycle
and updating information on changes in key risks more than once a
year; - Keeping lists of principal risks short to
make it less likely they will be ignored; - Highlighting current concerns; and
- Reviewing experience of risk in the current
period.
ICAEW executive director Robert Hodgkinson
acknowledges that while risk reporting requirements vary across
countries, common principles can be employed to improve the
objectiveness and usefulness of reports.
However, Hodgkinson also warns of the dangers
of expecting risk reporting to “foretell impending events.”
“Risk reporting in itself creates risks and is
therefore seen as a risk management exercise,” Hodgkinson
explained.
