Voluntary disclosure is the provision of information by a
company's management
Management (or managing) is the administration of an organization, whether it is a business, a nonprofit organization, or a government body. It is the art and science of managing resources of the business.
Management includes the activities ...
beyond requirements such as
generally accepted accounting principles
Publicly traded companies typically are subject to rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms operate on th ...
and
Securities and Exchange Commission
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against mark ...
rules,
[FASB, 2001]
Improving Business Reporting: Insights into Enhancing Voluntary Disclosures
Retrieved on April 20, 2012.[Meek G. K., Roberts C. B., Gray S. J., 1995. Factors Influencing Voluntary Annual Disclosures By U.S., U.K., and Continental European Multinational Corporations. ''Journal of International Business Studies'' 26(3), 555-572.] where the information is believed to be relevant to the decision-making of users of the company's
annual reports.
Voluntary disclosure is carried out by many companies,
although the extent and type of voluntary disclosure differs by geographic region, industry, and company size.
[ The extent of voluntary disclosure is also affected by the firm's ]corporate governance
Corporate governance is defined, described or delineated in diverse ways, depending on the writer's purpose. Writers focused on a disciplinary interest or context (such as accounting, finance, law, or management) often adopt narrow definitions ...
structure[Eng L.L. & Mak Y.T., 2003. Corporate governance and voluntary disclosure. ''Journal of Accounting and Public Policy'' 22 (2003), 325-345.] and ownership structure;career
The career is an individual's metaphorical "journey" through learning, work and other aspects of life. There are a number of ways to define career and the term is used in a variety of ways.
Definitions
The ''Oxford English Dictionary'' defi ...
paths and military
A military, also known collectively as armed forces, is a heavily armed, highly organized force primarily intended for warfare. It is typically authorized and maintained by a sovereign state, with its members identifiable by their distin ...
experience.[Bamber, Linda Smith, John (Xuefeng) Jiang, and Isabel Yanyan Wang. 2010. “What’s My Style? The Influence of Top Managers on Voluntary Corporate Financial Disclosure.” ''The Accounting Review'' 85 (4).]
Voluntary disclosure has also been identified as an important area in financial reporting research.[Ho, Simon S.M, and Kar Shun Wong. 2001. “A Study of the Relationship Between Corporate Governance Structures and the Extent of Voluntary Disclosure.” ''Journal of International Accounting, Auditing and Taxation'' 10 (2) (June): 139–156.] There are links between firm choices to voluntarily disclose certain information and what they are required to disclose via mandatory disclosures.
Overview and practices
Costs and benefits
Voluntary disclosure benefits investors
An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Type ...
, companies and the economy
An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with t ...
; for example, it helps investors make better capital allocation decisions and lowers firms' cost of capital
In economics and accounting, the cost of capital is the cost of a company's funds (both debt and equity), or from an investor's point of view is "the required rate of return on a portfolio company's existing securities". It is used to evaluate n ...
, the latter of which also benefits the general economy.conflicts of interest
A conflict of interest (COI) is a situation in which a person or organization is involved in multiple interests, financial or otherwise, and serving one interest could involve working against another. Typically, this relates to situations ...
in widely held firms.[Chau G.K. & Gray S.J., 2002. Ownership structure and corporate voluntary disclosure in Hong Kong and Singapore. ''The International Journal of Accounting'' 37 (2002), 247-265.]
Voluntary disclosure is also affected by shareholder
A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal ...
demands; for example 60 percent of the companies on the S&P 100
The S&P 100 Index is a stock market index of United States stocks maintained by Standard & Poor's.
Index options on the S&P 100 are traded with the ticker symbol "OEX". Because of the popularity of these options, investors often refer to the ind ...
adopted voluntary disclosure policies in response to shareholder demand for information on corporate political spending.competitive advantage
In business, a competitive advantage is an attribute that allows an organization to outperform its competitors.
A competitive advantage may include access to natural resources, such as high-grade ores or a low-cost power source, highly skilled ...
.
Regulatory and academic opinion
Types and examples
Voluntary disclosures can include strategic information such as company characteristics and strategy, nonfinancial information such socially responsible
Social responsibility is an ethical framework in which an individual is obligated to work and cooperate with other individuals and organizations for the benefit of the community that will inherit the world that individual leaves behind.
Social ...
practices, and financial information such as stock price
A share price is the price of a single share of a number of saleable equity shares of a company.
In layman's terms, the stock price is the highest amount someone is willing to pay for the stock, or the lowest amount that it can be bought for.
B ...
information.Financial Accounting Standards Board
The Financial Accounting Standards Board (FASB) is a private standard-setting body whose primary purpose is to establish and improve Generally Accepted Accounting Principles (GAAP) within the United States in the public's interest. The Securi ...
classified voluntary disclosures into the six categories below,stockholders
A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal own ...
and creditors
A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property ...
, and shareholding breakdowns.
;Company background:For example, product descriptions and long-term objectives.
;Information about intangible assets:For example, research and development
Research and development (R&D or R+D), known in Europe as research and technological development (RTD), is the set of innovative activities undertaken by corporations or governments in developing new services or products, and improving existi ...
and customer relations.[{{Cite journal, last=Jan Mouritsen, last2=Per Nikolaj Bukh, last3=Bernard Marr, date=2004-03-01, title=Reporting on intellectual capital: why, what and how?, journal=Measuring Business Excellence, volume=8, issue=1, pages=46–54, doi=10.1108/13683040410524739, issn=1368-3047]
References
Accounting research
Accounting terminology