Investors are demanding that companies' boards should give more information of how they identify and manage risk to protect the sustainability of the company, according to the UK's top accounting regulator.
Since the financial crisis, companies have improved their risk reporting – or identifying what hurdles they could potentially face – new research from the Financial Reporting Council's (FRC) Financial Reporting Lab revealed.
But the research found that investors want more information about how a company assesses risk, to help them understand how the board is managing potential hazards and protecting the sustainability of the business.
“Investors encourage companies to be more transparent on how they have assessed the prospects of the company, how they have considered their principal risks, and what stress and scenario testing they have carried out to enable them to make their viability statement,” said Phil Fitz-Gerald, director of the FRC Lab.
“They have said that risk disclosures have been more informative since the financial crisis, but that more can be done to provide them with confidence that companies are managing their risk and considering their long-term prospects.”
The viability statement, which aims at providing a broader view of long-term solvency and liquidity, can help a company better analyse its risk appetite, the FRC Lab found.
But it added that companies need to be “bolder” in their disclosures to ensure they provide investors with better information about longevity and relevance.