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February 2, 2011

FRC calls for clarity in principal risk disclosure

The UK Financial Reporting Review Panel of the Financial Reporting Council (FRC) says there should be more clarity and disclosure of principal risk in directors’ reports.

The FRC panel found that many reports do not state how the company manages its principal risks or lacks clarity in indentifying those risks.

Financial Reporting Review Panel chairman Bill Knight said that any board should be able to describe in their accounts, simply and clearly, the principal risks and uncertainties facing the company. “Many boards do this, but too many do not. Boards who retreat behind boilerplate give the impression that they have not themselves understood the risks they face,” Knight said. The Panel has issued question guidelines based on its findings to help and encourage company directors to better explain and describe the principal risk.

Increasing transparency in risk disclosure has become a very common suggestion from different parties within financial reporting with auditors, audit committees and company boards being asked to increase risk disclosure.

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