FINANCIAL DISCLOSURES SIGNIFICANCE

Financial Disclosures Significance



Financial Disclosures Significance

Introduction

The traditional model of reporting, based above all on historic data concentrating on profits and the asset and financial situation of companies, does not suffice any more in the present circumstances. Furthermore, investors expect detailed information as to the strategy and development perspectives of the company (Zeff, 2002, pp. 54).

However, there seems to be a clear lack of information directed at the future of enterprises. Financial reporting does not meet the requirements of investors, as a result of which communication gaps appear.

Financial Disclosures

The disclosures in the financial statements of a company pertain to the information that a company provides in order to clarify or to make the shareholders understand the financial information regarding the company. The disclosures in the financial statements are there to help the outside people to make their decision regarding their investment in the company. The management also utilizes these disclosures to testify the accuracy & the validity of the financial information that has been reported (Wyatt, 1990, pp. 88).

Mandatory Disclosures

There are several things, which a company has to disclose in the financial statements to comply with the International Accounting Standards and the International Financial Reporting Standards. These disclosures concern the financial health and the corporate policies of the company, which could help an investor in determining the true value of the company. These things include details about the corporate governance practice, the details about the board of directors, different accounting policies, etc. Through these disclosures, the investors would be able to draw a clear picture about the financial health of the company, and could take their long-term decisions (Tribunella, 2009, pp. 37).

Voluntary Disclosures

There are certain things that the IFRS does not ask a company to disclose in its financial statements, and it is upon the discretion of the company to disclose certain things in their financial reports. This information includes things, such as the description of internal controls of the company, the investor relationship building measures. This information is revealed for the potential investors of the company to help them judge the performance of the company and make forecasts regarding future performance (Rahr and Rutledge, 2010, pp. 8).

Press releases and impression management

Even though, the significance of a press release as part of disclosure strategy of a company is accepted all over the globe, and a number of companies are using this method to disclose information regarding their company. The press release is very important because of its easy accessibility, and is a very crucial technique for managers to communicate the performance of their firm to the public, and manage their firms' impression, i.e. they can use it as an impression management tool. Nevertheless, through using the press releases, the managers can make an impact on the perception of people and make a stronger image of their company in the market. Sometimes, the managers give self-seeking disclosures, which show their performance in a positive frame and blame the poor aspects of the company performance on the external ...