Editorial: Beyond finance: how new accounting standards can support risk management practices Open Access

In essence, business risks are events or actions that may adversely affect an entity’s ability to achieve its strategic, operational and financial objectives (McNeil, Frey and Embrechts, 2005). When these risks materialize, their repercussions extend well beyond corporate finance: they may impair reputation, undermine business sustainability, erode stakeholder confidence and even generate systemic consequences.

The recognition of such impacts has led to increasingly sophisticated approaches to risk analysis – the result of an evolutionary process aimed at capturing the growing complexity of the uncertainties that affect organizations. While early concerns were confined to protection against specific losses (e.g. accidents or property damage), it soon became evident that such a fragmented perspective was insufficient in light of dynamic markets and corporate operations. Consequently, the concept of risk management was consolidated as a set of systematic practices designed to identify, assess, monitor and mitigate risks in an integrated manner, enabling organizations to anticipate threats, safeguard assets and sustain their strategies under conditions of uncertainty.

This conceptual development did not occur during isolation. This has been accompanied by a regulatory environment that has undergone constant transformation. As economic crises and systemic failures expose vulnerabilities in risk management practices, international bodies began to establish increasingly stringent standards with the aim of enhancing transparency and comparability.

This editorial examines how International Financial Reporting Standards (IFRS) have contributed to identifying and controlling risk exposures in financial markets, particularly within the spheres of banking, insurance and sustainability. In recent years, a series of initiatives have been introduced to strengthen the prudential regulation undertaken by national governments and establish more rigorous governance mechanisms capable of mitigating recurrent failures in risk management that tend to surface during periods of crisis.

Within this context, IFRS 9 has direct implications for financial institutions by addressing the provisioning of losses arising from borrower defaults and market price fluctuations. Its purpose is to enable robust planning to protect institutions against potential losses. IFRS 17 is directed toward the insurance sector, addressing the risk that actual claims may exceed expected amounts and provides guidance for insurers to measure and report such risks adequately, thereby ensuring market stability. IFRS Sustainability Disclosure Standards (IFRS S1 and S2) further expand the discussion by incorporating sustainability-related financial risks (e.g. environmental degradation or social challenges) that may affect both organizational reputation and long-term performance.

From this perspective, we underscore the principal research opportunities emerging in these domains with the objective of fostering closer alignment between academic inquiry and the concrete challenges faced by economic agents in the management of risk.

The subprime crisis of 2008 revealed, in a striking fashion, the consequences of underestimating and misjudging risks (Fonseca and Carvalho, 2025). Extreme movements in asset prices, shortcomings in credit analysis and excessive exposure to complex financial instruments demonstrate how market, credit and liquidity risks can propagate rapidly on a global scale. In the aftermath, capital markets displayed heightened concern with corporate risk management processes, as it became evident that existing mechanisms were fragile and prevailing regulatory requirements were insufficient to prevent crises of such magnitude.

In response, more stringent regulatory requirements have been introduced to restore public confidence in the market. The crisis had exposed vulnerabilities both in provisioning criteria (i.e. the amounts recognized in financial statements to cover probable future obligations) and capital requirements, which set the minimum level that institutions must maintain. In this context, the Basel Accords have gained renewed prominence. Basel III, launched in 2009, introduced stricter rules for the measurement and control of credit, market, and liquidity risks while also emphasizing operational risk management and the maintenance of sufficient capital to absorb unexpected losses.

The debate on provisioning likewise placed pressure on accounting standard-setters to revise their rules. At that time, IAS 39 was in force, requiring the recognition of credit losses only when objective evidence of default was available. The model, grounded in historical costs, proved inadequate during the 2007–2009 crisis, which led to the issuance of IFRS 9.

In 2018, IFRS 9 introduced the expected credit loss model. This forward-looking approach requires the early recognition of provisions when credit is granted. This calculation incorporates historical data, forward-looking projections and macroeconomic factors, thereby demanding complex analyses that integrate knowledge from finance, accounting, economics and actuarial science. This shift not only posed significant technical challenges for institutions but also opened a broad field for academic research.

Recent studies have illustrated this. Kyiu and Tawiah (2025) show that IFRS 9 adoption is associated with reductions in market risk measures among banks located in jurisdictions that implemented the standard, with the effect being more pronounced in environments characterized by strong regulatory oversight. This finding suggests that the outcomes of the standard are not homogeneous; rather, they vary according to institutional context and degree of enforcement. Such evidence reinforces the need for further studies examining its implications for risk management, financial stability and decision-making (Taylor, Awuye, Cudjoe and Aubert, 2025).

A comprehensive review by Awuye and Taylor (2024) further underscores this need by identifying significant gaps in the literature. Among these, three are particularly noteworthy: (1) the granular modeling of credit risk in diversified portfolios, (2) the long-term strategic effects, especially in the context of new crises, and (3) the potential disincentives to extend credit to higher-risk sectors, such as small and medium-sized enterprises.

As in the financial sector, the 2007–2009 crisis also prompted profound changes in the regulations of insurance companies. The most decisive response came from the Solvency II regime, implemented in Europe in 2016, which sought to strengthen insurers’ capital adequacy, protect policyholders, and ensure the economic and financial stability of the sector. Because risk is intrinsic to insurance contracts (owing to the inherently unpredictable nature of claims), Solvency II established more stringent criteria for provisioning and maintaining adequate economic capital.

In the accounting domain, the major turning point occurred with IFRS 17’s entry into force in 2023. This standard replaced IFRS 4, which permitted local practices and hindered international comparability of reports (Arce, Giner and Taleb, 2023). IFRS 17 introduced a forward-looking approach, requiring insurers to estimate the present value of future cash flows and add a non-financial risk adjustment reflecting the uncertainties involved (Carvalho and Carvalho, 2024).

As a principles-based standard, IFRS 17 allows insurers discretion in selecting methodologies when forming expectations. This feature creates fertile ground for academic research, whether in developing methodologies for measuring cash flows and risk adjustments or in evaluating the reliability of reported estimates. Investors, regulators and auditors depend on robust instruments to assess information quality and the absence of uniform criteria raises concerns regarding comparability and transparency.

The scope for methodological discretion also reignites debates about managerial opportunism. Evidence indicates that subjectivity in provisioning by insurers can facilitate earnings management (Ding, Lev, Peng, Sun and Vasarhelyi, 2020). Therefore, an open question is whether IFRS 17 effectively mitigates such practices or whether it continues to leave room for distortions.

Another relevant issue is the distinction between life and non-life products. In life and pension insurance, long-term cash flows and the recognition of future profits render measurements more complex and subject to volatility. In non-life contracts such as property and casualty insurance, uncertainties are generally resolved within one year, reducing these concerns (Arce et al., 2023). Empirical assessment of how IFRS 17 affects these two distinct contexts represents a promising avenue for research.

Various techniques have been employed to measure the risk adjustment for insurance contracts, including value-at-risk (VaR), tail value-at-risk (TVaR) and expected shortfall (ES). Although useful, each of these methods has limitations. Testing their effectiveness in capturing the uncertainties inherent in insurance contracts constitutes an important research agenda for the years ahead.

Finally, it is worth underscoring a significant conceptual difference. As England, Verrall and Wüthrich (2019) argue, while Solvency II evaluates risk over a one-year horizon, IFRS 17 adopts the perspective of the entire life of cash flows. This methodological divergence has significant implications for both insurers and regulators and represents yet another open question for academic inquiry, as well as for professional practice.

Capital markets have demonstrated growing concerns regarding corporate engagement in sustainability-related issues. Recent natural disasters have highlighted socio-environmental risks and exposed the vulnerability of business models disconnected from environmental, social and governance (ESG) practices. As Seow (2024) observes, weather events have become critical factors in the assessment of corporate risk.

Investors and other stakeholders have begun to demand greater transparency, clearer targets and more consistent strategies. Sustainability disclosure has ceased to be merely a regulatory requirement; it has also become a domain in which firms signal, negotiate and, in some cases, obscure their true commitment to climate-related risks (Chabot, 2025). Empirical evidence supports this trend: Huang, Li, Lin and McBrayer (2022) find that firms located in proximity to natural disasters tend, on average, to increase their level of ESG disclosure following such events.

To harmonize and enhance disclosure practices, the International Sustainability Standards Board was established in 2021. In 2023, the board issued its first two standards: IFRS S1, which sets forth general requirements for sustainability-related disclosure, and IFRS S2, which focuses specifically on climate-related risks. Together, they provide an international framework intended to guide firms in identifying, measuring and communicating environmental and social risks.

However, their implementation poses significant challenges. These standards require both qualitative and quantitative assessments, yet no consolidated procedures exist to measure these risks in a standardized manner. The literature highlights important practical and empirical gaps, particularly in the development of robust techniques to quantify financial impacts. This is especially complex given that climate-related risks vary substantially across regions. For example, in Brazil, the low probability of earthquakes renders the direct application of models developed in other contexts inappropriate.

Accordingly, the development of models that incorporate local specificities and account for alternative uncertainty scenarios constitutes a promising research agenda. Tools such as Monte Carlo simulations (capable of evaluating probabilistic distributions across thousands of iterations) and machine learning techniques for scenario forecasting have emerged as relevant alternatives to support decision-making by managers and regulators.

Opportunities also exist beyond risks. As Sautner, Van Lent, Vilkov and Ruishen (2023) emphasize, while physical climate change and regulatory interventions may impose costs on certain sectors, other industries (e.g. renewable energy, electric vehicles or energy storage) may benefit directly from these transformations. This ambivalence reinforces the importance of integrating climate-related risks into the pricing and resource allocation processes.

Although the intersection of finance and climate has gained increasing attention, research remains at an early stage. Recent studies (Li, Shan, Tang and Yao, 2024; Sautner et al., 2023) have provided important methodological advances; however, there is still a lack of robust empirical evidence, particularly in emerging markets and sector-specific contexts.

The evolution of international accounting standards demonstrates that risk management has ceased to be confined to internal corporate practices and has become established as a regulated, comparable and globalized field. IFRS 9 reinforced the need for forward-looking provisioning in the financial sector, IFRS 17 redefined the measurement of obligations arising from insurance contracts and IFRS S1 and S2 broadened the debate to encompass socio-environmental and climate-related risks, highlighting sustainability as an inescapable dimension of contemporary business risk.

Despite these advances, several significant challenges remain. Actuarial science occupies a strategic position in bridging theory and practice. Its statistical and probabilistic toolkit offers a sophisticated means of transforming uncertainty into concrete metrics, thereby supporting the measurement of financial, insurance, and climate-related risks. Methods such as stochastic simulations, dependence modeling through copulas, extreme risk measures (VaR, TVaR and ES) and hybrid approaches integrating machine learning can enhance the accuracy of estimates required by international standards. Beyond providing instruments for calculating provisions and capital adequacy, actuarial methods help reduce managerial discretion, thereby increasing transparency and comparability in reporting. Integrated with accounting and finance, the discipline not only strengthens organizational resilience but also opens new avenues for applied scientific research on business risks.

Academia played a central role in this landscape. Researchers can contribute by developing more robust models for risk measurement, empirically testing the effects of adopting standards across different institutional contexts and proposing methodological solutions that respond to the needs of regulators, investors and managers. Interdisciplinarity is a key element: bringing together accounting, finance, actuarial science, economics and data science is essential for understanding and anticipating the impacts of business risks in an increasingly uncertain world.