appunti risk and accounting

CORPORATE GOVERNANCE, RISK MANAGEMENT AND RISK DISCLOSURE

INTERNAL CONTROL AND CORPORATE GOVERNANCE

The system of internal control represents a corporate governance mechanism that can be used to align the interests of managers and shareholders. The whole system of controls is established in order to provide reasonable assurance of: effective and efficient operations; internal financial control; and compliance with laws and regulations. Without an effective system of internal control, companies can undergo substantial financial losses as a result of unanticipated disasters. Academics discussed a number of cases of corporate failure and explained how inadequate systems of internal control contributed to collapse.

RULES FOR RISK MANAGEMENT DISCLOSURE FOR ITALIAN LISTED COMPANIES

The Corporate Governance Code for Listed Companies The Italian Corporate Governance Committee was set up in June 2011 by the issuers and investors associations (ABI, ANIA, Assonime, Confindustria and Assogestione).

as well as the Italian Stock Exchange (Borsa ItalianaS.p.A.). →CONSOB

The National Financial Law (TUF), Art 123-bis.

RISK MANAGEMENT, is based on:

• The Identification,
• Assessment and
• Monitoring of the enterprise risks and the related mitigation plans.

It is supported by:

• Specific methodologies,
• Instruments and metrics for the related analysis and management.

The board of director has to define the strategy of the company and the risk appetite.

The second step is an evaluation and an assessment of the resource, asses and weakness of the company.

If they match you could have a look of the risks and the opportunities.

12 The risk governance model is in line with national and international standards and best practices and it’s compliant with the Corporate Governance Code for Listed Companies, the Organizational, Management and Control Model and the Group’s Anti-Corruption Code.

It has three levels, provides for clear-cut roles and responsibilities for the various departments, and ensures

Source: The Italian Corporate Code

Article 6. Internal control and risk management system

Principles

XVIII. The internal control and risk management system consists of a set of rules, procedures and organizational structures for an effective and efficient identification, measurement, management and monitoring of the main risks, aimed at contributing to the sustainable success of the company.

XIX. The board of directors defines the guidelines of the internal control and risk management system in accordance with the company's strategies and annually assesses its adequacy and effectiveness.

XX. The board of directors defines the principles concerning the coordination and the flow of information among the parties involved in the internal control and risk management system. Such principles aim at maximizing the effectiveness of the system itself, reducing the duplication of activities and ensuring the successful performance of the

1. board of directors;
2. the other corporate functions involved in the internal control and risk management system (such as the risk management functions and the functions dealing with legal and non-compliance risk) which are articulated in relation to the company's size, sector, complexity, and risk profile;
3. the control body, which monitors the effectiveness of the internal control and risk management system.

In line with a good and efficient stock market, it's important to provide information to reduce asymmetry between the manager and the investors. Shareholders are interested in having information to evaluate where to invest their money. Financial statements and financial information are ruled and disclosure is ruled by accounting rules; the topic of financial reporting and financial information is based on the accounting rules followed by the company, and that's the reason why also financial statements are monitored by internal control.

Financial reporting guidelines are rules that are defined and issued by various organizations and authorities. These guidelines are designed to ensure that financial information provided by companies is accurate and transparent. They are not only governed by internal functions within the company, but also by external actors and are monitored and checked by supervisory authorities in stock exchange markets worldwide.

For example, the International Accounting Standards Board (IASB) is an international standard-setting body that defines and issues standards for financial reporting. In the European Union, there are European Directives that supervise the financial rules for company disclosure. Within the European Commission, there is a technical organization called the European Financial Reporting Advisory Group (EFRAG), which provides investigation and support to the European Commission in issuing directives for financial reporting and non-financial disclosure of companies.

European companies are obligated to provide non-financial disclosure, which is a form of limited and essential information that is typically

The company provides in the sustainability report. The proxy is most of the large companies in Europe provide non-financial disclosure either in their sustainability report or in their financial reporting in the management report. We have a kind of fragmented and both international and national organization providing sectors standards guidelines on financial and sustainability reporting.

By ensuring frequent and relevant corporate disclosure, shareholders are in a better position to monitor company management. It reduces the problem of information asymmetry. Financial reporting as a means of reducing information asymmetry (Watts and Zimmerman 1986).

Sustainability and the concept of sustainable development are terms that have evolved over the last 30 years. Brundtland Commission (1987), by the World Commission on Environment and Development (WCED), explained that sustainable development implies development that meets the needs of the present without compromising the ability of future.

generations to meet its own needs.

A NEED FOR A BROADER CORPORATE ACCOUNTABILITY ARISES

The last 20 years have witnessed a growing interest in "Corporate Social Responsibility". Growing fears of such high-consequence risks as global environmental disaster, terrorism and nuclear war have forced people's attention on environmental and social issues.

SUSTAINABILITY AND A STAKEHOLDER PERSPECTIVE

From a shareholder capitalism to a stakeholder capitalism. It focused not only on the needs of shareholders but also on the needs and requirements of all corporate stakeholders.

A stakeholder perspective is perceived as more consistent with the notion of Corporate Social Responsibility. and it's focused in Environmental performance, Economic performance, Social Performance.

GLOBAL REPORTING INITIATIVE (GRI) has produced Sustainability reporting guidelines (Environmental, Economic, and Social). GRI are advancing the practice of sustainability.

Reporting and enabling businesses, investors, policymakers, and civil society to use this information to engage in dialogue and make decisions that support sustainable development.

How is structured a Sustainability Reporting as per GRI Guidelines?

SR is the practice of measuring and disclosing sustainability data with Performance Indicators and Management Disclosures.

It helps stakeholders to understand organizations' sustainability performance and impacts.

The main steps to use the GRI Reporting Framework are as follows:

• Identify the topics that are relevant by undergoing an interactive process using the principles of materiality and stakeholder inclusiveness;
• When identifying the topics, consider the relevance of all indicator aspects identified in the GRI Guidelines and applicable sector supplements.

STAKEHOLDER ENGAGEMENT

An emerging trend is the growth of stakeholder engagement. According to Thompson and... a range of diverse, qualitative information gathering

methods.Bebbington (2002) it is:

SUSTAINABILITY AND INTEGRETED REPORTING

The GRI Standards promote: a multi-stakeholder process, and enable companies to provide a full picture of their sustainability impact.

The Double Materiality Concept → Impact Materiality (i.e. external impacts) Financial Materiality (sustainability matters that financially affect the reporting entity).

Sustainability Reporting as per GRI Guidelines aims to:

• Identify the topics that are relevant by undergoing an interactive process using the principles of materiality and stakeholder inclusiveness organizations’ sustainability performance and impacts.
• Help stakeholders to understand

The One Report (Eccles and Krutz 2010)

The International Integrated Reporting Council (IIRC) is a global coalition of regulators, investors, companies, standard setters, the accounting profession, academia and NGOs.

All the 6 left capitals that correspond in input go through the Business model to transform themselves in

Integrated reporting aims to:

• Improve the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital;
• Enhance accountability and stewardship for the broad base of capitals (financial, manufactured, intellectual, human, social and relationship, and natural) and promote understanding of their independencies;
• Support integrated thinking, decision-making and actions that focus on the creation of value over the short, medium and long term.

Directive 2014/95 EU for Non-Financial Disclosure & ESG Performance:

• Companies that must comply with EU rules on non-financial reporting only apply to large public-interest companies with more than 500 employees.
• Listed companies had provided to the market even non-financial information.