Enhancing risk-related disclosure in South Africa: a study on guidelines and current practices

Abstract

Investors partake in the risk of a company, in expectation of a return on investment which is in accordance with the company’s risk profile. Due to recent corporate failures, which are partly attributable to insufficient risk management, a call by investors for enhanced risk-related disclosure resulted in the publication of various international standards and guidelines on best practices for risk disclosure. This study compiled a disclosure index from these standards and guidelines in order to serve as a disclosure-enhancing tool for the management of South African companies. This index was subsequently used to investigate current practices exhibited by top listed companies in South Africa. Disclosure practices by these companies indicate that there is scope for improvement in risk- and risk-management-related disclosure by these companies.

Ensuring More Sustainable Reporting in Europe Using Non-Financial Disclosure—De Facto and De Jure Evidence

“…Furthermore, one the most disclosed content elements is Principal Risks and Their Management, with a score of 0.90 (45 companies out of 50 report this item). Also, this value is higher than the values obtained in previous research [58,59] and can be read in light of the dissatisfaction shown by investors and stakeholders in recent years regarding several corporate scandals and failures, such as those of Enron, Worldcom, and Adelphia, with respect to the general level of risk and risk management disclosure provided by the companies [44,79,80]. Indeed, for investors and stakeholders, a higher level of risk disclosure allows for conducting a better assessment of the risk profile of a company by reducing the equity cost and improving the market efficiency [44,46,81].…”

“…On the other hand, the Health Care sector shows the lowest average number of pages in a report with a mean of 217.5. As already noted, 204 pages should be enough to contain all the necessary information that an investor needs [79].…”

Investigating risk disclosures in Italian integrated reports

“…Our findings support Beretta and Bozzolan (2004) and Oliveira et al (2011), who confirm the majority of disclosures are backward-looking. Forward-looking information is more relevant to stakeholders who wish to assess the future impact of the firm's risks as part of their decision-making process to invest (Beretta and Bozzolan, 2004;Abraham and Cox, 2007;Dobler, 2008;Rajab and Handley-Schachler, 2009;Enslin et al, 2015). Lower levels of forward-facing risk disclosure are also a signal that companies have only partially complied with the requirements set out in the <IRF>, which ask companies to provide information on future risks even in uncertain conditions (IIRC, 2013).…”

“…With firm ownership concentrated in only a few families, the role of the stock market is limited visà-vis powerful banks in credit and financing (Alexander and Servalli, 2011;Jaggi et al, 2016). Listed Italian firms must produce financial statements according to the international accounting standards (IAS/IFRS), but none of these standards, beyond a 2010 IASB practice statement, require an accompanying management commentary (Haller and Van Staden, 2014;Enslin et al, 2015). The practice statement suggests the management commentary should include a description of the:…”

“…4. Linking risk disclosure and integrated reporting IR can be seen as an alternative risk representation technology to offer a new understanding of how perceived risks are connected with the strategy and outlook of the company (Enslin et al, 2015). According to van Zijl et al (2017, p. 73), IR should "provide users with a detailed explanation of how an organisation manages financial and non-financial risks to generate sustainable returns".…”