FRC examines reporting needs on risks and opportunities
What do investors want to understand about risks, uncertainties, opportunities and scenarios? That’s a big – and fascinating – question, and one which the UK Financial Reporting Council’s Financial Reporting Lab has tackled in its latest report, seeking to bridge the gap between the information that users want and that companies provide.
“Companies seek to seize and deliver on opportunities that create long-term value that are aligned to their purpose. But every opportunity and every action (or inaction) has an associated risk. Investing is as much about assessing the risk as the related opportunity. This means that all organisations have a story to tell on these topics to investors, regulators and other stakeholders. But is this story clear, is it connected and does it reflect the organisation’s processes?” it asks.
The report addresses four broad areas. First, investors want to understand governance and processes, with regard to how the board and management identify, monitor and manage the risks, uncertainties and opportunities they face. The report then considers reporting needs relating to both the nature of these factors, in terms of characteristics such as context, importance and form, and approach, or how management is responding. Finally, it looks at scenarios and stress-testing and what investors want from them. A particularly helpful aspect of the report is the inclusion of a number of examples of current reporting practice from real companies, highlighting what is useful about them. A one-page summary and a discussion podcast are also both available.
Following this publication, the Lab is now inviting companies, investors and other interested parties to participate in a new project considering emerging processes and related disclosures around Cyber, Digital & Data risk; contact them by 15 October 2021 to join.