FRC shares insights, not prescriptions, for boards on risk

The UK's accountancy regulator thinks it's time that boards of corporations think again about how they discuss and manage risk. In conjunction with a report on narrative reporting and audit, the Financial Reporting Council has also issued a summary of views about a discussion paper it had circulated on risk. The summary makes clear its intent to revisit the so-called Turnbull guidance on risk disclosure but also that it broadly finds those recommendations – first issued in 1999 and then updated in 2004 – still fit for purpose. But the paper acknowledges that board practice has moved on, and so the update to the guidance is really just a first step for boards. It said: "the approaches and techniques used by boards have been developing rapidly. One size very definitely does not fit all, but there were some common themes and techniques found to be useful. We therefore felt that the insights gained about the issues boards were facing, and the ways they were addressing them, should be shared more widely to reflect and contribute to best practice."

Among the conclusions are that better risk decision-making needn't and shouldn't lead to less risk-taking. The FRC doesn't want to dampen entrepreneurship spirit. That means that board committee structures may need to vary from industry to industry, so it won't be recommending, for example, that all companies establish risk committees. Board need to focus their attention, however, on "those risks capable of undermining the strategy or long-term viability of the company or damaging its reputation".

The FRC noted that the velocity of risk has increased, and with it the global transmission of risk. Companies needed "robust crisis management plans", with a clear distinction between the roles of the chairman and the CEO in dealing with them.

Source document: The FRC discussion summary "Boards and Risk" is a 17-page pdf file.