The Financial Reporting Council is considering changes to the risk management and reporting aspects of the corporate governance code imposed on listed companies and auditors
The watchdog today issued a consultation proposing new guidance aimed at raising risk management standards. Supplementary guidance for directors of all banks was also issued.
Melanie McLaren, the FRC codes and standards executive director, said: 'The new guidance and the proposed changes to the code, highlight the issues that boards need to consider when assessing and managing risk, crucially including risks to solvency and liquidity.
'We have placed considerable emphasis on the need for robust assessment by boards and on the important role of auditors in ensuring reliable communication to investors.'
She said that risk management was one of the most important responsibilities of a company's board. Understanding the principal risks facing the company is essential for the development of strategic objectives and the ability to seize new opportunities.
'For investors, as providers of risk capital, knowing how the board is managing and mitigating risks is an important indicator when judging whether the company will be able to deliver the value that investors seek,' added McLaren.
Commenting on the consultation, David Hare, president of the Institute and Faculty of Actuaries, said actuaries would play a key role in helping companies and auditors to implement these new requirements.
'Few professionals have the technical knowledge and judgement required to undertake the modelling that these new rules demand.
'With an October 2014 application date, the timeline to implement these activities is challenging to say the least and access to established expertise in the modelling of financial uncertainty and risk will be vital.'
Hare added: 'If you are responsible for the accounts, running or ownership of a listed company, then today's announcement by FRC will affect you.'
He said the new rules would require companies to undertake robust risk assessments, often backed up by scenario modelling, and for auditors to be able to investigate and challenge the work done to evidence these.
At Hymans Robertson, head of enterprise risk management Vijay Krishnaswamy said the implementation of these recommendations was not a small task.
'But many audit firms will adopt the recommendations rapidly as a matter of good practice for encouraging sound auditing.
'It's likely that auditors will need to apply actuarial techniques, outside their usual skill set, in order to comply. In our own work with leading financial institutions, the task of embedding risk management within a business has not been straightforward as there are both technical and cultural difficulties to be overcome and the scale of the challenge facing UK plc is sizeable.'
Krishnaswamy added: 'The upside is that, done well risk management, can add real value for investors, while giving other stakeholders greater confidence in long term corporate performance.'
The consultation closes on January 24 2014.