FRC’s Lab to examine reporting on risks and uncertainties

The Financial Reporting Council’s (FRC's) Financial Reporting Lab is inviting investors and companies to participate in a new project on corporate reporting on risks, uncertainties and scenarios

The regulator says the move is in response to the current levels of uncertainty in the business environment, as the coronavirus pandemic has had a significant impact on all sectors and a wide range of operations. 

Investors and other stakeholders are increasingly looking for information from companies about how they will evolve, adapt and respond to changes in the external business environment.

Given the significant reassessment many companies are currently making to their longer-term business model and strategy as a result of Covid-19, the FRC says risk, uncertainty and scenario disclosures are likely to become even more important.

How companies consider and report on business model, strategy, the reporting of risk, uncertainties and scenarios, viability and resilience, and the drivers of value is, necessarily, interconnected and is scheduled to be addressed as part of the FRC’s previously announced Horizons project which began work at the end of last year.

However, given current circumstances, the Lab’s newly announced project will  focus  specifically on the reporting of risks, uncertainties and scenarios and consider what users want from these disclosures.

The scope of the project will develop depending on the input from participants, but is likely to:

  • explore whether and how companies’ risk identification, risk management and scenario planning processes are evolving and how this is impacting reporting and disclosure.
  • determine whether the time horizons utilised in scenario planning have changed.
  • consider how companies communicate uncertainty in their disclosures.
  • discuss which areas of reporting are most challenging for companies.
  • explore examples of risks and related disclosures where investor focus has been heightened by the current pandemic (for example, supply chain risk, existential risk/viability of business model).
  • analyse how investors use this information in their decision-making process and identify whether reporting meets investor needs;
  • discuss what types of disclosures would be most useful in interim reports; and
  • highlight best practice in current company reporting.

The Lab is inviting investors and companies to communicate their interest in participating by emailing FinancialReportingLab@frc.org.uk. It expects to publish a range of outputs across 2021.

The opportunities for participation are expected to consist of virtual individual meetings of an hour and round table meetings of 1.5 hours. Participants will be kept updated on the progress of the project throughout and are given an opportunity to comment on drafts.

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