Risk reporting
The aim of reporting of risks is to inform readers of areas where the company is especially sensitive to internal or external events, or possibly those areas where it might be expected to be, but has through mitigation reduced the risk in a manner which would not otherwise be obvious externally. Reporting in this manner can give users greater understanding of how their investments, credit or livelihood is exposed, whereas lengthy generic lists do not achieve this.
Principal risks and uncertainties
UK corporate reporting legislation calls for all medium or large companies to report on their “principal” risks, rather than to attempt to produce a list of any or all risks. As the Financial Reporting Council notes in its guidance on strategic report, the word “principal” should be considered significant. The company or group should look at the areas where the value or viability of the company could be most affected or is most likely to be affected. Risks need not, and probably shouldn’t, all be financial in nature. The trigger for a future deterioration in profitability could be damage to a current relationship, resource or legal right. Risks listed as principal risks but described as unlikely to occur and of minimal impact should be excluded unless the reason why this is the case requires explanation.
Reporting on risks in governance reports
Where a resource or relationship is identified as key elsewhere in the annual report or has proved critical to a particular company or industry in the past, we would expect to see the company note this in principal risks and, where it is required to report on corporate governance, to have listed such risks as issues considered by the audit or other committees. Risk issues in corporate governance can be difficult to bring to life, and case studies and examples can help readers to understand and add credibility to what can otherwise be a potentially bland description of procedure.
Risks at the interim stage
For listed companies, principal risks must be reported not only in the annual report, but also, as a requirement of the listing rules, in the half-yearly report. The requirements for the interim reporting are subtly different from those for the annual reporting, referring only to the remainder of the year and the list of principal risks should affect this.
How we can support you
We can help you refine your risk register to decide what is principal, guide you through the challenges and requirements of compliance and help you meet external expectations. We can also work with you to identify potential missing areas, particularly in relation to non-financial risks, such as climate change exposure.
This can include:
- Considering common and company specific components of reporting in the annual and interim reports;
- Considering how the company can demonstrate how it assesses and mitigates its key risks and how its governance system addresses these; and
- Drafting or assistance with drafting sections of the annual report.
Contact us
If you would like to contact us, please use the link below and a member of the Accounting Technical Services team will be in contact.
National contact
Narrative reporting
Pressure for greater transparency from shareholders, not only in the financial statements, but in explaining performance in detail and in more forward-looking areas like strategy and plans for the future is not new.