ACCA (the Association of Chartered Certified Accountants) welcomes the Financial Reporting Council (FRC) taking on the challenge of trying to bring a more joined-up approach to risk management, internal control, reporting on risk and the assessment of going concern.
In its full response to the FRC’s consultation Draft guidance to the directors of companies applying the UK corporate governance code and associated changes to the code, ACCA says that if the draft guidance was issued, it could have a profound effect on both business and elements of the public sector, such as the NHS, which tend to follow private sector standards.
Paul Moxey, ACCA’s head of corporate governance and risk management, said: 'We are happy that these proposals are more aligned with the Sharman Panel’s intentions, as it wanted to ensure that risk management and internal control should be incorporated within a company’s normal management and governance processes.
'However, the draft guidance implies that there is one way to do risk management and that is by assessing the principal risks to the company’s business model and ability to deliver its strategy. While this may be an important component of managing risk for most companies it should not be the only one. This approach tends to assume that all significant risks can be foreseen and accurately assessed. This would be dangerous as unexpected risks inevitably happen and expected risks happen in an unexpected way.
'Company resilience, not risk assessment, should be the principal aim for boards when considering risk.'
ACCA is also pleased to see that the FRC wants to bring considerations of culture into its draft guidance.
Paul Moxey adds: 'It’s pleasing to see the word ‘culture’ appearing frequently in this draft guidance. Culture is a vitally important subject for risk management, but sadly misunderstood, which is why ACCA is conducting a research project to understand better how culture influences corporate behaviour.
'We hope to see the FRC take a lead in encouraging a better understanding by boards and executives of how culture affects the risks faced by an organisation and how risk management processes can better take human nature into account.'
- For ACCA’s full response to the FRC consultation on risk management, internal control and the going concern basis of accounting, see the 'Related Links' section, left of this article.