Greater disclosure of risk needed, says governance body

DIRECTORS should be clearer about the risks facing their business in annual reports, the UK’s governance watchdog said today.

Statements from chairmen and chief executives should be balanced and discuss the biggest risks to the business in more detail, according to new recommendations from the Financial Reporting Council (FRC).

Audit committee reports should also disclose anything in the annual report that external auditors thought contradicted financial statements or their audit findings, the FRC said.

FRC director of corporate reporting Ian Wright told City A.M. the recommendations would improve discussion about risk after the credit crunch exposed banks’ failure to manage the risks they faced.

“Its not just banks that fail,” he said. “We’re trying to make sure that good companies don’t fail because the board didn’t consider the right risks.”

But he admitted the FRC had no evidence that companies had failed because of poor information flow between auditor committees and shareholders.

The recommendations will worry businesses that face growing corporate governance requirements from regulators. Wright said the proposals would not force companies to spend more time on corporate reporting.