The IFoA has established a new working party, the FRC and Risk Reporting Working Party, to develop the profession's response to upcoming changes in the Financial Reporting Council's guidance to directors on risk management and internal control, commonly referred to as the Turnbull guidance.
The FRC's recent consultation on changes ended in January, with the IFoA submitting a joint response with the Institute of Risk Management that was broadly supportive. The final guidance is expected to be issued during the summer, with the new guidance becoming effective for financial reporting years commencing on or after 1 October 2014.
The changes will represent a material enhancement to guidance on risk management and may require improvements in risk management at many of the companies that fall within the scope of the new guidance. This presents an exciting opportunity for actuaries to help all listed companies - not just those in the financial services sector - to meet the challenges that will arise.
The new guidance deals with a range of topics, including risk management, internal control and the going concern basis for accounting. Much about these topics was already covered by the existing Turnbull guidance, but the proposed new guidance looks at the risk management topics in more depth. In particular, it provides more detail on the expectations of firms and on the issues that boards should consider as part of ongoing risk management and as part of their annual review of these processes.
Boards will be expected to identify and assess the principal risks that companies face, with a more explicit expectation that firms will evaluate the likelihood of risks and their potential impact. This quantification is clearly a core area of competence for actuaries and something in which financial services firms have a great deal of experience. Stress testing and reverse stress testing are also explicitly covered for the first time - another familiar area for many actuaries.
The guidance is wide-ranging, with many questions being raised for boards to consider.
The IFoA working party is taking forward a range of activities in response to the proposed guidance. These include considering research with chief financial officers and chief risk officers to assess the expected impact and highlighting areas where most change is likely to be required, preparing material, outlining how actuaries can help firms, and planning events both within the profession and with wider audiences.
An overall objective of the working party is to help actuaries make the most of this chance to expand their impact and influence.