Voluntary disclosure is the provision of information by a
company's management
Management (or managing) is the administration of organizations, whether businesses, nonprofit organizations, or a Government agency, government bodies through business administration, Nonprofit studies, nonprofit management, or the political s ...
beyond requirements such as
generally accepted accounting principles and
Securities and Exchange Commission 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 refers to the mechanisms, processes, practices, and relations by which corporations are controlled and operated by their boards of directors, managers, shareholders, and stakeholders.
Definitions
"Corporate governance" may ...
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
A career is an individual's metaphorical "journey" through learning, work (human activity), work and other aspects of personal life, life. There are a number of ways to define career and the term is used in a variety of ways.
Definitions
The ...
paths and military
A military, also known collectively as armed forces, is a heavily armed, highly organized force primarily intended for warfare. Militaries are typically authorized and maintained by a sovereign state, with their members identifiable by a d ...
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, companies and the economy
An economy is an area of the Production (economics), production, Distribution (economics), distribution and trade, as well as Consumption (economics), consumption of Goods (economics), goods and Service (economics), services. In general, it is ...
; for example, it helps investors make better capital allocation decisions and lowers firms' cost of capital, the latter of which also benefits the general economy.[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 corporate stock refers to an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the ...
demands; for example 60 percent of the companies on the S&P 100 adopted voluntary disclosure policies in response to shareholder demand for information on corporate political spending.
Regulatory and academic opinion
Types and examples
Voluntary disclosures can include strategic information such as company characteristics and strategy, nonfinancial information such socially responsible practices, and financial information such as stock price 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 Secur ...
classified voluntary disclosures into the six categories below,market share
Market share is the percentage of the total revenue or sales in a Market (economics), market that a company's business makes up. For example, if there are 50,000 units sold per year in a given industry, a company whose sales were 5,000 of those ...
growth and information on new products.
;Analysis of business data:For example, trend analyses and comparisons with competitors.
;Forward-looking information:For example, sales forecast breakdowns and plans for expansion.
;Information about management and shareholders:For example, information on stockholders and creditors, 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 some countries as OKB, experiment and design, is the set of innovative activities undertaken by corporations or governments in developing new services or products. R&D constitutes the first stage ...
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