FRC publishes summary of the listed company community’s views on risk and internal control
The UK Corporate Governance Code (the Code) states that “the Board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives…[and] should maintain sound risk management and internal control systems”.
The Financial Reporting Council held discussions earlier this year with listed companies, investors and advisers on how companies that are subject to the Code are approaching these requirements on risk and internal control, and on 1 September 2011 published a summary of the results of those discussions in a paper titled “Boards and risk: A summary of discussions with companies, investors and advisers” (the “Summary”). The Summary can be read here and the accompanying press release is here.
The Summary – which is principally of relevance to listed companies, but which will be interest to all larger companies, public or private – covers:
- The role of the Board, committees and management
- The company’s approach to risk
- The changing nature of risk
- The quality and use of information
- Sources of assurance
- Risk and control culture
- Public reporting
- The Turnbull guidance on internal control.
The FRC states that it drew three main conclusions from the discussions:
“The first was that there has been a step change in the Board’s focus on risk in the last few years, at least in the companies that we spoke to. This conforms to the emphasis in the revised Code on the Board’s responsibility for strategic risk decision-making.
“The second was that while ‘Internal Control: Revised Guidance for Directors’…was still broadly fit for purpose, some change was needed to reflect the role of the Board as articulated in the new version of the Code. The FRC intends to carry out a limited review during 2012.
“The third conclusion was that the approaches and techniques used by boards have been developing rapidly. One size very definitely does not fit all, but there were some common themes and techniques found to be useful. We therefore felt that the insights gained about the issues boards were facing, and the ways they were addressing them, should be shared more widely to reflect and contribute to best practice.”
The main findings of the discussions are set out on pages 2 and 3 of the Summary.
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