Risk management and reporting risk in the UK

TLDR

Risk management has evolved in finance and corporate sectors, with advanced measurement techniques increasing understanding and prompting debate over risk disclosure to stakeholders. The paper examines two proposals for increased risk disclosure in annual reports, evaluating their merits and drawbacks from both enterprise and investor perspectives. They analyze the proposals by reviewing their recommendations and assessing the benefits and drawbacks of implementing them in annual reports. They find that voluntary risk disclosure is rare and argue that regulation is warranted to ensure adequate disclosure.

Abstract

Recently the discipline of risk management has evolved greatly within both the financial and corporate sectors. More sophisticated ways of measuring risk have been developed, bringing about a greater understanding of risk and an increased ability to manage it. As organizations have become more adept at managing risk, a debate has arisen surrounding the disclosure of risk-related information to investors and other stakeholders. In this paper, the authors discuss two proposals that recommend greater disclosure of risk information, and examine the merits and demerits of disclosing such information in annual reports both from the enterprise and investor point of view. They conclude that although businesses have had the opportunity to disclose risk information voluntarily few have done so, and if it is considered that such disclosure is desirable then there is a strong argument for regulation.