- Challenge for some firms to get business leaders to engage fully with risk management
- Difficulty of quantifying long-term strategic risk felt to be the toughest challenge companies will face in implementing the guidance
Research commissioned by the Institute and Faculty of Actuaries (IFoA) on the Financial Reporting Council’s (FRC) new code and guidance on risk management shows companies may not be fully aware of the changes in risk culture they will be expected to make to ensure they are compliant.
The research follows the publication in September 2014 of revisions to the UK Corporate Governance Code and to the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting by the FRC. The research was conducted with senior managers of FTSE and Premium Listed companies to explore industry’s response to the guidance to date.
While the majority of companies say they have started work on assessing the impact of the revised guidance (63%), a very low proportion have actually completed this work. Nearly a quarter (22%) have not yet started to consider the potential impact of the revisions although they come into effect 1 January 2015 for organisations with a financial year end of December.
The research shows that a majority of respondents think that the revisions will have little or no impact on their business in terms of their organisation’s risk management approach (78%), their organisation’s year-end risk or audit committee reporting process (63%) and their organisation’s risk disclosures in annual reports and accounts (62%). Where stakeholders think that the revisions will have an impact, this is anticipated to be limited.
In addition, the difficulty of quantifying long-term strategic risk is widely felt to be the toughest challenge that companies will face in implementing the guidance (63%).
David Hare, Immediate Past President of the IFoA, comments, “It is good to see that the majority of companies have made a start on assessing the impact of the FRC’s new code and guidance on risk management, although it appears some companies may be underestimating the challenges of meeting the new requirements.
“The new guidance expects companies not only to consider the desired risk culture within the company but also to demonstrate that this culture has been embedded. This will be a challenge for many firms and they will need to give early consideration as to how they can do this.
“There is a danger that the FRC’s intent to embed a healthy risk culture in organisations will not be realised if companies do not consider it an important part of their organisation. The findings indicate there remains a cultural challenge in some firms in getting sufficient focus on this area, however, business leaders will need to engage fully with risk management if the guidance is to work as intended.”
For further information on the research FRC Risk Reporting Guidance for Boards, further comment, or to answer any questions that you may have please contact Annette Heninger, Media Relations Manager at the IFoA, on 07525 592 198 or by emailing firstname.lastname@example.org
The research was conducted by ComRes with 63 stakeholders between 3rd October and 19th November 2014. Stakeholders were defined as key decision-makers involved in implementing the revisions to the FRC guidance for their companies.
Research was conducted with companies from the FTSE100, FTSE250 and those with a Premium Listing of equity shares in the UK. Job functions interviewed included Chief Financial Officer, Chief Risk Officer, Senior Finance Manager, Senior Risk Manager, Company Secretary and General Counsel.
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