Disclosing risk management policies in financial statements

Abstract

The collapse of some prominent worldwide companies in recent years could partially be attributed to the lack of good corporate governance principles in these companies, with specific reference to risk management. The King Code on Corporate Practices and Conduct as published by the King Committee in 2002, referred to as King II, deals extensively with the aspect of risk management in companies and the recommendations included .therein, are very clear about the responsibility, application, implementation and reporting in respect of risk management in companies. The primary objective of this research is to investigate the different sources of risks companies are exposed to, as well as the measures and methods available to manage these risks, and to evaluate the annual reports of listed companies so as to determine the level of implementation of risk management practices by way of an assessment of their corporate governance reports. The research revealed that there are mainly three sources of risk that companies are exposed to, i.e. strategic, operational and financial risks. From the research it was evident that most companies spend most of their efforts and resources, in respect of risk management, in the area of financial risk management, whilst strategic risk management receives the least attention. To ensure the implementation of an effective risk management system, it is proposed that companies first do a strategic risk audit in order to determine what their strategic risks are, which include risk in the longer term, where after a risk management framework should be developed in order to identify, measure, accept or mitigate, review and monitor risks applicable to the specific company on an ongoing basis.