Proposals from the English ICA’s financial reporting committee to include risk assessments in annual reports have come under fire from leading accountants and actuaries.
The committee’s report, ‘Financial Reporting of Risk’, proposed a statement of business risk to allow companies to itemise and explain the risks they faced. But KPMG’s response, submitted last week, took issue with the report’s suggested opt-out for ‘commercially sensitive’ risks.
The result, said KPMG, ‘will lead to bland, boilerplate reporting and, by being incomplete, could be misleading’.
KPMG went on to question whether risk statements compiled by managers would identify internal issues, such as fraud and lack of management integrity, that led to recent financial collapses.
The firm preferred to see more emphasis on risk management in the operating and financial review, with a statement explaining whether the company had a sound risk management process, and whether it had been reviewed.
By reporting only the risks, KPMG said, the institute’s approach would stifle entrepreneurialism. ‘Boards should define their risk appetite and take decisions accordingly – they must take risks to get a return.’
The Institute of Actuaries complained the proposals were drafted too loosely and that formally quantified risks would be more useful to investors.
Price Waterhouse technical partner Ian Wright was not convinced of the need for a separate risk statement, but would be comfortable with such information in the OFR. But Wright added criticisms of the ICA report should not undermine the move to transparency.
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