RISK DISCLOSURE

RISK DISCLOSURE

Risk relates to future events that are quantifiable.

Uncertainties are future events that are indeterminate and non-quantifiable.  

In the 1990s, companies began to move from simple risk analysis to more proactive risk management.

Companies should disclose their risk management practices.

IFRS 7 deals with the risks associated with financial instruments.

There should also be discussion of the major risks and uncertainties facing the company and how these are being dealt with.  

The main classes of risk are identified as:

• -          Market risk:  exchange rate, interest rate or other price movements;
• -          Liquidity risk:  possible problems in making cash available.
• -          Credit risk:  customers fail to pay.

If there is an existing or potential liability, this is fully disclosed in the annual report as you need to know about this in order to properly assess the company.

RISK FACTORS

The risk factors are normally listed in order of significance.  

These provide some insight into management’s view of the risks seen to be facing the business.  

These may be related to a country’s economy, or a company’s industry or geographic location.  

Market risk includes interest rates, foreign exchange and commodity price risk.

“New” measure of risk.

An alternative approach to company risk assessment has been offered,  It is suggested that the number of times the word “new” appears in the annual report may provide a measure of risk.