Steve Cooper, a member of the IASB, discusses an accounting approach for dynamic risk management.
One area of financial reporting that may leave investors struggling today is the accounting for risk management—particularly, dynamic risk management. Many entities are exposed to market price movements that affect their profitability. For example, a bank’s net interest income is often the most significant contributor to profitability. However, net interest income is exposed to changes in interest rates. How well a bank manages this risk affects its profitability. Managing these risks on a continuous and dynamic basis is one of the key elements of financial risk management. Dynamic management of interest rate risk is therefore a critical component of a bank’s ongoing risk management activities.
Read the full article: Dynamic risk management-accounting in an age of complexity