Generating Risk-Based Financial Reporting

Abstract

An unstable economic environment requires more transparent data on financial reports, especially with regard to risk disclosures. Nevertheless, a lot of companies build their risk management systems for records and, as a consequence, they come to be ineffective. Currently, neither national, nor international laws or standards contain clear requirements for a risk-based system to maintain accounting records and generate financial reports. When preparing financial reports, a company must take into consideration any and all existing and potential risks that may affect both its financial statements and decision-making by users of these financial statements and disclose such risks and their impact on its reporting or statements to disclose complete and reliable information about its financial position and bottom lines. The risk-based approach implies that financial reports should be generated in compliance with all requirements of international financial reporting standards, while the greatest focus is made on individual items with the maximum risk exposure. Therefore, the standardized usage of a risk-based financial reporting system (FRS) can be viewed as a cornerstone of transparent and most informative reporting data. The paper discusses both theoretical and methodological provisions about how companies can employ the risk-based approach to generate their financial reports.