Corporate Financial Risk Management: Governance and Disclosure Post IFRS 7

So far, the new regulatory and accounting context of Corporate Financial Risk Management (CFRM) has deeply influenced the operations of corporates. New protagonists of the CFRM process have developed rapidly. Accounting managers have been obliged to thoroughly understand the economics of derivatives, while the Board, the auditors and external financial analysts have become more deeply involved in the process of CFRM. Unfortunately, this revolution has not been accompanied by an adequate change in the language of CFRM, which is actually very complex and inadequate for both the Board and Analysts. Only the language of value creation can help in overcoming these problems, as it would allow the Board to improve the governance of the process of CFRM and, consequently, to communicate what analysts really need, through proper risk disclosure. From January 2007, IFRS 7 has introduced a new approach to risk disclosure. This is a good opportunity to design a reporting system which exploits the language of value creation. This paper describes the main aspects of the new regulatory context of CFRM and explores some revolutionary improvements brought about by IFRS 7. It also gives some guidelines to the creation of a language that is apt for the governance and the disclosure of CFRM.