Globally, over the last few decades, the regulatory pressure on companies to improve risk reporting has increased significantly. The system of timely awareness of significant risks and assessment of its intensity has helped in laying the foundation of risk management. The revised guidelines of the Financial Reporting Council (FRC), issued in July 2018, established higher demands from companies to focus on reporting risks, from a long-term, rather than short-term perspective. The importance of guidance on such risks is clear given that the long-term viability of the company can be in question. Risk registers and control-self-assessments (CSAs) are measures utilised for risk reporting in large institutions worldwide. Despite offering several benefits, such as good practice in risk reporting, a reduction in the number of reported frauds and corporate accounting failures, internal control breaches and improved strategic decision making, corporates face many implementation issues.

To understand the issues in risk reporting, significant amounts of in-depth, empirical research was carried out between 2013 and 2017, across 20 large insurance companies in India and the UK. The research was then verified by several auditors. The findings revealed that auditors are confronted with several issues when assessing the risks reported in risk registers or via CSAs. Auditors’ hands are tied to reported risks and, in occasional cases, they opt for identification of unreported risks. If front line managers do not report the right risks to senior managers or auditors, the entire risk management system is placed in jeopardy. In general, the notion is related to defensive risk reporting or compliance-based risk reporting, either to please senior managers or fulfil compliance requirements. The research highlights three cases for good practice in risk reporting. The findings emphasised the adoption of a hybrid approach of top-down and bottom-up risk communication to inculcate good culture in risk reporting and promote good practices.

Jan-Mar 2019 Issue

Indian School of Business (ISB)