First Thoughts on Financial Risk Communication

Writing for the Public will provide us (students) with a great opportunity to express risk information in our own unique form. After having our first class, it appears that many students come from multiple backgrounds of study. These various backgrounds, along with each student's unique method for communicating risk, will significantly enhance our overall experience of how to formulate and present risk in multiple areas.

Since I am a sophomore CBA student intending to major in accounting, I plan to use the skills acquired from class to learn how to communicate financial risk to various audiences. Along with this, I plan on tying in how to communicate in case of a disaster related to a financial crisis. Finally, I want to explore how auditors may communicate opinions to the public and a company's management after accessing a company's financial statements.

What I find interesting about the above issues is how they all can relate to each other. Think about it. Every company needs to report their financial information to the Security and Exchange Commission (SEC). But the SEC is not the only one. Investors, shareholders, managers or even undergraduate students analyzing 10-K forms over a ten year period to prepare a summary of graphs and financial spreadsheets for a project ( and yes, I did this myself last year as part of a group project) need to view this information, and be able to understand it.

However, it is not as simple as recording numbers over a set time period and sending it in to the SEC. ALL accountants must follow a set of financial reporting requirements known as GAAP (for more information, see this link: http://www.fasab.gov/accepted.html). So the GAAP principles, which maintain reporting standards, can actually be a constraint. Communicators, accountants, in this situation need to recognize that not all people will understand financial reports. This can pose a challenge for accountants reporting the necessary information in an understandable form. Exploring how accountants do this will be very interesting.

I have learned much of this information from my high school accounting classes, which are what stimulated me to pursue accounting as a career, as well as my first and current college accounting course. In the future, as I take new accounting courses each semester, I plan on increasing my knowledge of the risks associated with financial reporting. I feel that Writing for the Public will provide me with a foundation on how to effectively communicate these risks.
Some may think that these reporting standards are to overwhelming, and may limit a person's ability to understand a company's finances. But the standards need to be met. Instances such as the Enron scandal prove how failing to meet the expectations of the Financial Accounting Standard Board (FASB) can immediately destroy a company and the lives of its employers (for more information regarding the Enron accounting fiasco, please check out this link: http://encarta.msn.com/encyclopedia_701610398/Enron_Scandal.html). I believe this event led to the creation of the Sarbanes-Oxley Act, which called for significantly stricter financial reporting requirements.

Now it can be seen why communicating financial risk to investors and stakeholders using legally correct methods is an absolute necessity. If done incorrectly it can affect the lives of a company's employees, the people who use the company's products, other firms who rely on the company for resources, etc. The stakes are high for correct financial risk communication. So it will be interesting to see how communicating a company's financial information can affect multiple people and companies.