Improving the relevance of risk disclosure in corporate annual reports

The purpose of this paper is four fold. The paper summarises prior literature on risk disclosures, it develops a model for assessing the quality of risk disclosures and applies the proposed model to four different companies in the food producers and processors sector. Finally (and arguably the most important objective), the paper suggests a way of improving risk reporting disclosures which can be used as future guidance for company managers.

In line with previous research, this paper identifies certain problems with existing disclosures. The results suggest that managers prefer to make disclosures that are symbolic rather than substantive. This appears to be because they are concerned about proprietary costs and therefore behave in a similar way to their competitors by only revealing general information.

Based on our conclusions this paper also meets an overall objective to suggest a way forward to improve company reporting practice in this area. Regulators should focus on improving the quality of existing risk disclosures rather than calling for additional disclosures. We propose that in order to do this, managers should consider addressing three key questions identified by this study, in their disclosures. Guidance for companies could be based around this framework. It is proposed that flexibility in reporting could be maintained by adopting a ‘comply or explain’ approach.