Accounting glossary term
Financial Risk Management
Financial risk management is a systematic process to identify, assess, and respond to risks that could damage financial value or goal achievement, including exchange-rate moves, interest-rate swings, and default risk.
What is Financial Risk Management?
Financial risk management is a systematic process to identify, assess, and respond to risks that could damage financial value or goal achievement, including exchange-rate moves, interest-rate swings, and default risk.
How It Works
- Record relevant transactions in the general ledger with proper classification.
- Monitor key indicators on a monthly or quarterly basis.
- Report progress and variances to management and the board.
- Adjust strategy and operations based on the data.
Saudi Context
Under Saudi accounting practice, Financial Risk Management is reported in line with IFRS as adopted by SOCPA. ZATCA-registered companies must keep supporting documentation and reflect Financial Risk Management consistently in their VAT returns, zakat declarations, and Annual Financial Statements. Saudi Vision 2030 compliance and CMA disclosure rules add further reporting layers for listed firms.
Example
A Riyadh-based trading company applies Financial Risk Management in its month-end close. The accounting team computes the figure using actual transactional data from ASAPI, compares it against the prior period and budget, and includes a narrative in the monthly management report so leadership can act on the result.
Related Terms
- Working Capital