Airmic 2013: ‘Corporate risk reporting rules need to tighten up’

Airmic and ICSA will urge the Financial Reporting Council to tighten up risk reporting when it updates the UK Corporate Governance Code later this year, it was announced at Airmic’s annual conference today.

The announcement was made as the two organisations jointly published the findings of their research into risk reporting.

They reviewed risk reporting at 24 selected companies – three each from the eight main industrial sectors. Two-thirds of those surveyed were in the FTSE 100, the rest in the FTSE 250.

They found that the way many companies reported their risk management activity was opaque, lacking in detail and detached from overall corporate strategy.

Although companies listed on the London Stock Exchange are required to describe their risk management activities annually, there is a wide disparity in the quality of risk reporting.

In addition, the report indicates that while firms in the leisure industry have a generally high standard of risk reporting, most of those in sectors such as food and drink are uninformative.

Chemical and pharmaceuticals and mining and energy were two other industries that, although high-risk, were generally of a low standard.

Overall, many companies treat risk management as a standalone activity in their reporting, instead of describing it in the context of the wider corporate strategy.  

The research lists several advantages to good risk reporting, such as enhancing shareholder confidence by demonstrating that corporate strategy is underpinned by a “dynamic and comprehensive” risk management framework.

Airmic technical director Paul Hopkin said: “If you’re good at risk, then why hide the fact? The impression is that many firms with strong stories to tell see risk reporting as little more than a compliance exercise. Yet the exercise can underpin confidence in the company, whilst the discipline of having to report can help firms to sharpen their practices internally.”