The 2014 UK Corporate Governance Code (‘the Code’) may well be remembered as the one that introduced the viability statement. In contrast, although we know that there has been lots of focus within companies on the underlying risks and risk management systems, there is much less evidence of this coming through into annual reports.
In many ways, this is understandable. Other than the new confirmation that the directors have carried out a ‘robust assessment’ of the principal risks, there is little to drive change in risk disclosures in either the Code itself or in the FRC Guidance on risk management, internal control and related financial and business reporting (‘the Guidance’ or ‘the FRC Guidance’) that was issued alongside it.
Risk reporting remains a challenging area where a natural conservatism holds sway. Companies tell us that their priority is to avoid giving away anything that is too commercially prejudicial and that the rewards of breaking free from the pack are just not there.
We hope the proposals in this paper will help move risk reporting forward, as from feedback received the state of risk reporting today does not meet investor and stakeholder needs. But it is also intended to be practical: it should not add pages and pages to an average annual report – indeed it could save some space – and it does not include anything that we see as potentially prejudicial.
Our proposals are based on a few simple ideas:
At the end of the document we’ve also included some specific suggestions around reporting on Brexit as this will be a key issue for many. Overall though, what is in this document is a prototype that we will continue to work on and we would be delighted to receive your feedback on it.