RISK CONTINUED More focus needed on impacts and mitigation In terms of a discussion of potential impacts for risk factors, the majority of companies confine themselves to a broad statement about a risk being ‘detrimental to the company’s ability to generate revenue’. We are only seeing a small number of reports go further than this and provide quantified information about the effect of a risk should it occur. Such information is usually not provided for all risks and in most cases focuses on sensitivity analysis for factors such as commodity prices and foreign exchange rates. Risk mitigation is an area where we have seen clear progress in the past year with nearly two-thirds of reports providing details of mitigation activities for all risks – a figure which is almost double what it was two years ago. These are obviously encouraging signs though preparers of reports should not lose sight of the fact that quality is still paramount when it comes to risk reporting. Regulators have been quick to attack ‘generic’ statements relating to risk. Therefore, it is vital that details of mitigation efforts are specific to the entity and do not read as if they could be rewritten for any business of a similar type. Figure 6.5 How many companies are identifying potential risk impacts? 78% 67% 5% 4% 80% 4% 84% 5% Quantified impacts Qualitative identification of potential impacts 62% ’07 37% 32% 8% 23% ’08 74% ’08 56% 20% 5% 19% ’09 76% ’09 79% ’10 Figure 6.6 How do companies explain how they are mitigating risk? 63% Specific statement for all risks Specific statement for some risks 20% 4% 13% ’10 General statement for all No discussion of risk mitigation 24 © Black Sun Plc 2011 www.blacksunplc.com
