Businesses have been managing and responding to risks for a very long time. The nature of business is itself risky. One of the principal functions of good governance is for the directors of a company to have systems and controls in place to identify, manage and mitigate risks.
The Cadbury Report in 1992 which was the antecedent of the existing Corporate Governance Code noted: “No system of corporate governance can be totally proof against fraud or incompetence. The test is how far such aberrations can be discouraged and how quickly they can be brought to light. The risks can be reduced by making the participants in the governance process as effectively accountable as possible”.
The advice of the Cadbury Committee remains equally relevant today. Reporting on risks in the annual report serves that purpose of holding the directors to account to ensure they are managing both internal and external factors which could destroy value and threaten the viability of the business. It seems that the business environment is becoming increasingly uncertain and the lines between entity-specific and systemic risks are starting to blur.
This paper considers risk reporting by FTSE 100 companies in their annual reports from the 2015-2016 reporting cycle. It analyses the number, type and frequency of risks reported, to provide an holistic understanding of the risk reporting landscape.
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