Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.
I don’t know about you, but when I look at a company’s annual report, the two things I concentrate on are the Management Discussion and Analysis (MD&A) and the notes. The financial statements themselves I find to be relatively useless – they are just a bunch of numbers. The notes give you the real details behind the numbers, while the MD&A (if properly written – which admittedly is rare) helps you make sense of the numbers as well as providing the story and context behind the numbers.
I find that increasingly many risk reports tend to be like the financial statements of a company – lots of numbers (and charts) but little in the way of guidance for the details of how those numbers are constructed, and even less of the story and context behind the numbers.
I will argue that Board members, managers and stakeholders need the story and the context behind the numbers more than they need the numbers themselves. Numbers are too easy to misinterpret, or even worse too easy to develop an unwarranted degree of belief in. It is the colour of the story and the context that users of risk reports need. It is assistance in understanding the story of the risk that is most relevant. It is time that companies started creating a MD&A for their risk reports, rather than more numbers, with more decimal places of implied – but false – precision.
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