Archives For Risk

By Ewald Müller, director, Financial Analysis, QFCRA

Oil and gas-rich Qatar is one of the fastest-growing economies in the world, reporting GDP growth of more than 14% in 2011. Since the turn of the century, though, the country has taken steps to diversify its interests and has established a successful financial services sector in Doha, known as the Qatar Financial Centre (QFC).

Qatar Skyline

The relative newness of Qatar’s financial services industry means that the regulatory system around it has also been created almost from scratch. The Qatar Financial Centre Regulatory Authority (QFCRA) was established in March 2005 and was tasked with building a principles-based regulatory and financial reporting regime that is aligned with best practice internationally.

QFCRA’s objectives include the ‘maintenance of efficiency, transparency, integrity and confidence in the QFC, as well as the maintenance of financial stability and reduction of systematic risk’. Effective risk reporting is an essential element of that objective, but is something that is relatively new to companies based in Qatar. The prevalence of risk reporting has increased across the Middle East in the past few years, but there is a lack of a broad understanding of risk reporting, a lack of skills around risk reporting, and a lack of understanding among users about what risk reports are meant to convey.

In many developed countries, the global financial crisis has been a catalyst for a more focused conversation about the value of risk reporting. One of the difficulties for those hoping to encourage better risk reporting in Qatar, though, was that the impact of the crisis was not felt as keenly in that country.

One of the benefits of starting with a blank piece of paper is that the QFCRA has been able to focus on what it sees as the essentials of good risk reporting: brevity. In Qatar a lot of what we’ve focused on in terms of risk reporting has come from the IMF’s financial stability indicators, which is not a vast set of data. It is a very good starting point, in the sense that it reflects the work of the entire world and focuses only on key indicators.

The biggest issue for me around risk reporting is quality versus quantity. Internationally, I think there’s so much disclosure that often users can’t see the wood for the trees and risk reports do more to confuse them than they do to help them. As far as I’m concerned, the crux of successful risk reporting is that it tells me what is useful – and materiality plays probably the single biggest role in that. Brevity is the key, and that is driven by materiality.

So far companies in Qatar have been “very appreciative” of the work of the QFCRA from a prudential perspective and there is an appetite for better risk reporting. Good risk reporting, which is linked to transparency, is a cornerstone to good governance. If risk reporting becomes a habit, it will create value. The problem is that the flipside is easier to prove – those who do not report risk well probably have something to hide.

 

Ewald joined the QFC Regulatory Authority in April 2012 from the South African Institute of Chartered Accountants (SAICA) where, as Senior Executive: Standards, he influenced developments in international standard-setting and South African legislation and regulation.  Prior to his position with SAICA, Ewald held senior roles in financial management, regulation, financial analysis and investor relations, primarily in the financial services industry.

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A return to old school?

accapr —  19 February 2013 — Leave a comment

tall building, modern CFO

By Jamie Lyon, head of corporate sector, ACCA

In a recent global survey of finance leaders by the ACCA and IMA (Institute of Management Accountants), there was one stand-out data point of significant interest on the priorities of CFOs. The data suggests an entire balance of different priorities, some of which are entirely consistent with the finance leaders growing mandate, particularly around business insight and risk, while others were more akin to their traditional finance responsibilities; cost management, control and working capital. This isn’t entirely a surprise and is consistent with soundings we get elsewhere across different markets. This is also a probable underlying story of re-adjustment post-crisis.

Pre-crisis, many CFOs were in deal-making mode and, over the last five years, merger and acquisition activity has generally been one-way traffic; it’s only now that we’re starting to see a potential surge. Pre-crisis too there was much talk of the role of finance as a business partner. The partnering agenda and drive for insight hasn’t gone away but there’s a sense post-crisis that most finance departments earn their spurs first and foremost on ensuring the business is effectively controlled, that it meets its regulatory requirements and that it protects and maximises the funds it creates. The crisis brought into focus sharply a refocus on the finance fundamentals, the importance of sufficient liquidity and strong financial control. Part of the rationale here also relates to the broader call out now for business practices that drive long-term sustainable performance.

To this end, CFOs have a tough job on their hands, balancing the need to develop financial strategies that are beneficial over the longer term, knowing most eyes continue to be on quarter-by-quarter results… and that’s no easy call for today’s finance leader.

Check out the full survey results here….

Holger Lindner, member of advisory council, Singapore CFO Institute; former chief financial officer, Daimler South East Asia Pte Ltd.,  talks about the external factors and trends that shape the role of the CFO now and in the future. Holger discusses the areas of economic volatility and competition; greater risks rebalancing global economy with emerging markets in Asia, greater investor scrutiny, ethics and behaviour as key priorities for CFOs and finance leaders now.

The Changing Role of the CFO report explains how the financial and business landscape is changing: greater uncertainty for the global economy, fluctuating energy costs, rises in commodity prices, currency fluctuations, government deficits and cost cutting.

By Robert Bruce, Accounting and Business commentator and journalist

Accountants might not be stereotypical superheroes but if they can channel their enthusiasm for non-financial reporting into one roadmap, they could help rescue the planet.

It is said that it is hard to get accountants up on their feet a ta conference, let alone exhibiting exuberance. At the September conference of the International Integrated Reporting Council (IIRC) all this changed. Peter Bakker, president of the World Business Council For Sustainable Development, and now the deputy chair of the IIRC, called for all accountants present to stand up. They did. Bakker swept a hand around the room. ‘Ladies and gentlemen’ he said. ‘These are the people who are going to save the world’. It was a bold gesture and a galvanising one.

But as the conference heard from one after another of the companies working in the IIRC pilot programme, which captures the experience of implementing integrated reporting, the more it made sense. The finance function is becoming the engine room for a form of reporting which in the world of the IIRC, ‘aims to communicate the “integrated thinking” through which management applies a collective understanding of the full complexity of value creation to investors and other stakeholders’. And the more investors and stakeholders understand the part that things other than the narrow financials play in driving strategy, the more influence the non-financials will have.

A week later the bandwagon arrived in London at the first Non-Financial Reporting conference, hosted by Deloitte and in association with ACCA and the Global Reporting Initiative (GRI). Referring to the Amsterdam conference, Jenny Harrison, UK lead for the carbon and integrated reporting at Deloitte, described it as ‘invigorating’. ‘You felt these people would go back to their organisations and show the markets that this style of reporting can be concise, relevant and about integrating the thinking throughout their organisation,’ she said.

But it is also clear there is a wide range of views, inputs and attitudes from all the interested parties involved in making this process work. And there is the political difficulty in deciding upon a preferred system for putting all this together. Both the work of the GRI and the IIRC came in for criticism for, in case of the GRI, being too complex and resistant to change, and, in the case of the IIRC, being perceived as a bit of a closed shop. Much of this is the inevitable squabbling that happens when more than one model exists.

‘Some scepticism about the value of lengthy and complex GRI-style reports was expressed’, says Roger Adams, director, special assignments at ACCA, ‘but the lack of obvious widespread support for integrated reports seemed to indicate that preparers and users alike need more time with, and exposure to, integrated reports in order to see whether or not the emerging integrated reporting model represents a real step forward in terms of improved corporate reporting. Whichever reporting model is used, it is the issue of what to report and to whom that remains crucial. Reporters can construct complex risk matrices internally, but it is still of utmost importance to engage with the key stakeholder groups in order to understand how their concerns can be turned into meaningful reporting and enhance accountability.;

At the Amsterdam conference, Paul Druckman chief executive of the IIRC, made this a central point. He described the IIRC community as ‘a growing global community of businesses and investors who recognise that corporate reporting is as much about effective communication as it is about compliance with rigid rules’. And this is why integrated reporting has a transformative quality. ‘Corporate reporting,’ he said, ‘ is more than a good communications tool. It influences behaviour, within organisations and by investors, and it underpins the efficiency and productivity of our capital markets. So when governments, regulators and policy-makers talk about creating the conditions for a more responsible and responsive capitalism, rooted in activity that creates and sustains value, this is the business we are in.’

In the end, the Non-Financial Reporting conference, with all its many disparate contributions, suggested that corralling the different strands into a recognisable business-led movement was probably the answer.

“We need to gather all this enthusiasm into one roadmap,’ says Harrison, ‘Regulation is not the answer to improving corporate reporting. What are needed are examples of how this allows you to manage your business better. It needs to be more widespread. The IIRC is doing a great job, but it is the companies taking part in the pilot programme, and indeed those beyond that will make the difference.’

This post first appeared in Accounting and Business UK November 2012.

by Adrian Berendt, executive director, LCH Clearnet

As Chair of ACCA’s Global Forum on Governance, Risk and Performance, Adrian opened the recent Accounting for the future conference with a presentation focusing on risk management. In this address, Adrian describes how reporting was at the forefront of the recent debt crisis and that there is a significant role for accountants to play if we are to avoid a crisis like this in the future. He talks about the importance of risk management, to accountants, and how that many of the practices used today are flawed; how the culture in organisations impacts on the effectiveness of risk management; and finally how accountants need to know what to measure and report on in order to manage risk and create value.