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October 17, 2011

Better risk reporting needed: ICAEW

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.

 

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