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A study by the CGA-Canada Accounting and Governance Research Centre (CGA-AGRC) has found that the recent global financial crisis had little impact on the risk disclosures of non-financial Canadian firms. The finding suggests that investors examining changes in risks faced by non-financial companies between 2007 and 2008 would have been at a loss to anticipate the decline in market values that occurred in that period.

“A change in the financial headwinds has to affect risk disclosures,” says Daniel Zéghal, FCGA and director of the CGA-AGRC at the Telfer School of Management, University of Ottawa. “If there is no impact, it’s very likely that the analysis of risks is not thorough enough, or risk communicating strategies used by companies are ineffective. The findings in this study underline the need to pay particular attention to the quality of risk disclosures.”

Professors Daniel Zéghal, FCGA, Michael Maingot, CGA, CA, FCA and Tony Quon examined how the financial crisis affected risk disclosures using a content analysis of the 2007 and 2008 annual reports of Canadian non-financial corporations listed on the S&P TSX Composite Index. Fourteen types of risk were identified. Their disclosure was examined through three dimensions: level of exposure to risk, risk consequences and risk management. Despite financial and economic turmoil generated by the 2008 financial crisis, the total number of risk disclosures increased by only 3.6 per cent from 2007 to 2008. Changes in the disclosed levels of risk were even less notable. The magnitude of risk consequences disclosed by companies changed most noticeably for only two types of risk — economic and credit risk. However, these adjustments were still only marginal.

It is critically important for investors and other external users of enterprise risk management information to have reliable data and analysis. Policy makers are encouraged to accord particular attention to the quality of risk disclosures.

The study was recently published in the International Journal of Risk Assessment and Management, 2012 Vol. 16, No.4, pp. 227 – 247.

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