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August 31, 2011

FRC proposes to increase reporting on strategic risks

The UK Financial Reporting Council (FRC) has called for more information on key strategic risks of a company to be included in financial reports.

The FRC has proposed current company narrative reports focus primarily on strategic and major operational risks, rather than indiscriminate lists of risks that all companies face.

To achieve this, the FRC will update the Turnbull Guidance, which sets out best practice on internal control for UK listed companies and assists them in applying sections of the UK Corporate Governance Code (CGC). The regulator will also consider whether changes may be needed to the UK CGC.

FRC chief executive Stephen Haddrill said this move represents another step forward in applying the lessons learnt from the financial crisis to improve the overall transparency of the reporting process.

“We hope that by putting an emphasis on the reporting of risks that could undermine the company’s strategy or long-term viability, companies will give investors the information they need to help them decide how to allocate capital,” Haddrill explained.

Auditing Practices Board chairman Richard Fleck said in the future these proposals will mean “audit committees will report the key judgements and decisions made in the course of preparing and finalising financial statements, and auditors will report whether their review of the annual report as a whole – and not just the financial statements – has revealed any information that is inaccurate, or any other material that is inconsistent with information they obtained in the course of their audit.”

 

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