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ICAEW: Risk reporting not a silver bullet

Monday 17 October 2011 - by Karina Whalley

A leading accountancy body has proposed seven principles to help improve risk reporting, but warned clients not to expect miracles in preventing business failure.

The Institute of Chartered Accountants in England and Wales released a report on Monday exploring the current state of risk reporting across various sectors and countries and the challenges faced in this type of reporting.

Businesses and particularly banks have called for improved risk reporting in the aftermath of the global financial crisis, but the ICAEW report highlights the subjective nature of risk in predicting and preventing future crises.

"There is scope to enhance risk reporting but it is important to appreciate that risk reporting in itself creates risks and is therefore seen as a risk management exercise," said ICAEW executive director Robert Hodgkinson.

"The danger is that people expect [risk reporting] to foretell impending events. Risk relates to an uncertain future. Unforeseen problems do not necessarily mean that the risk assessment was wrong," he added.


Although Hodgkinson acknowledges that variation exists across national risk reporting requirements, he said there are some common principles that could make it more objective and useful.

The report proposes that firms provide information that allows users to make their own assessment of risk. It also says quantitative information would be more beneficial than long, descriptive risk lists.

Other proposals include the integration of risk information with other disclosures and the updating of information on changes in key risks more frequently than once a year.

Hodgkinson however emphasised the fallibility of reporting, saying: "With the benefit of hindsight, people wonder why firms failed to foresee a problem, and can forget that the future is always full of unknowns, including 'unknown unknowns'."


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