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News November 2017 Investors note improved information on risk, but more needed on viability reporting

Investors note improved information on risk, but more needed on viability reporting

23 November 2017

PN 56/17                                                                                               

Investors want a better understanding of how boards identify and manage risk to protect the sustainability of companies, according to a report from the Financial Reporting Council’s (FRC) Financial Reporting Lab (the Lab) (PDF), which sought to understand how companies can better inform investors on the risks they face and their viability. 

In its report published today, the Lab found that, since the financial crisis, companies have made enhancements to their risk reporting and investors have seen better engagement with them on how they are managing their risks. However, further improvements could be made and the report provides guidance and practical examples on how companies can find a balance between reporting that is specific, whilst not revealing commercially sensitive information.  

On the viability statement, companies have found the process of developing their statement to be helpful in better analysing their risk appetite, particularly by incorporating stress and sensitivity analyses into their risk management processes.  However, companies need to be bolder in their viability report disclosures to ensure that they provide investors with better information on the company’s longevity and relevance in the market.  The report encourages companies to develop their viability statements in two stages – firstly to assess prospects, and secondly to make their statement of viability.

Phil Fitz-Gerald, Director of the Lab, said,

“It is clear that investors want comprehensive information on companies’ principal risk and viability reporting. They have said that risk disclosures have been more informative since the financial crisis but that more can be done to provide them with confidence that companies are managing their risk and considering their long-term prospects.”

“Many companies have significantly enhanced their risk management processes to ensure that boards are able to make a statement about their viability.  Investors encourage companies to be more transparent on how they have assessed the prospects of the company, how they have considered their principal risks, and what stress and scenario testing they have carried out to enable them to make their viability statement.”

Notes to editors:

1. The Financial Reporting Council’s (FRC) mission is to promote transparency and integrity in business.  The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the competent authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.

2. The Financial Reporting Lab was set up, and is funded by, the FRC as a hub, bringing together companies and investors to support improvement and innovation in reporting. More information about the Lab’s work can be found at: frc.org.uk/Lab.

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