Risk reporting: a source of great anxiety
Given this, it seems strange that risk reporting often has the capacity to cause great anxiety in managers. Common sense would seem to dictate that, although management might know their own business, they don’t have a crystal ball. Common sense would also seem to suggest that investors – and others – should know that.
The fact that nobody can predict the future should in theory encourage a more open assessment of risks and opportunities: one in which managers are able to provide sensible assessment of what risks their business is most exposed to, and what impact on the business those risks would have. If the purpose of a forward-looking statement is to allow investors to understand how management views the future prospects for the business, then risk reporting should be seen rather like the answer to an exam question: designed less as an exercise in soliciting the ‘right’ answer and more as a way of illuminating the quality management’s thinking and the decision making.