Why is financial disclosure important?
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Why Is Financial Disclosure Important?
Disclosure of financial information, like a yearly report, or non-financial information, like a sustainability report, serves an essential function across all industries. Disclosure is incredibly important for the success of a company and in most cases, legally required. Our team at Fluence Technologies understands the importance of disclosure management, which is why we have put together this guide to discuss the significance of this action and how we can help make the process as easy as possible.
What Is Disclosure?
In the financial world, disclosure refers to making all relevant information about a business available to the public or internally to those that work at a company. What, then, is considered relevant information? This would include any and every piece of information, such as facts, figures, dates, procedures, and innovations that could potentially influence the decision of even a single investor. This information needs to be present regardless of whether it is advantageous or disadvantageous to an organization, thus, creating a healthy level of transparency. At the same time, you have a chance to control the narrative around what is reported, meaning your analysis, action plans, and decision-making about any negatives will also come to light.
It is important to note that financial disclosures are regulated by multiple organizations.
- Securities and Exchange Commission (SEC)
- The SEC’s Electronic Data Gathering, Analysis, and Retrieval system (EDGAR)
- European Securities and Markets Authority (ESMA)
- European Single Electronic Format (ESEF)
- Canada’s System for Electronic Document Analysis and Retrieval (SEDAR)
- Canadian Securities Administration (CSA)
Disclosure statements are strictly monitored by one or more of these organizations to ensure they are compliant with any and all regulations. This is especially true for a company that operates across multiple countries with differing laws. Our Fluence Disclosure Management platform is here to help ensure that everything is done the right way by making the process of creating reports for different nations incredibly easy.
What Is a Financial Disclosure Statement?
A financial disclosure statement, often abbreviated as FDS, is the publicly available record containing financial information about the filer for a calendar year. So, what is an example of disclosure? In finance, these statements can take form in a variety of documents, including income statements, balance sheets, cash flow statements, and statements of shareholders’ equity, to name a few.
What Is the Importance of Financial Disclosure?
The release of a financial disclosure statement is vital to the filer, investors, regulatory bodies, and the general public. These statements provide a variety of values for all of the previously mentioned groups, including:
- Transparency: The only way to ensure that everyone is operating fairly and given equal opportunity to make sound decisions is through honest disclosing of information. Not only is withholding unfavorable information illegal, but it also removes any chance of investors making good decisions about the business.
- Reduces Uncertainty: Good and bad information is better than zero information. One of the leading factors of market volatility is uncertainty. Even a full disclosure of poor performance can lead to essential predictions that can keep markets relatively stable.
- Prevents Illegal Activity: Full disclosures prevent insider trading or "dressing" of the books in order to make a company's financial situation look better than it actually is.
If you have even a basic understanding of the value and complexity of disclosures, it means that you want to leave zero room for error. This is where Fluence Technologies can step in to assist with the reporting process. With our solution, you will be able to deliver interactive, insightful reports on any data, for any business user.
What is the Purpose of Corporate Disclosure?
It is easy to immediately think of large publicly traded companies when you hear about financial disclosures and the purpose they serve. The most apparent purpose for those situations is to provide investors with the material information they need to make informed investment and voting decisions. However, what about smaller or mid-market companies that aren't publicly traded and still need disclosure management? Smaller organizations have slightly adjusted requirements for their disclosures. Here is what the SEC requires of these kinds of businesses.
- "To include less extensive narrative disclosure than required of other reporting companies, particularly in the description of executive compensation and
- “to provide audited financial statements for two fiscal years, in contrast to other reporting companies, which must provide audited financial statements for three fiscal years."
Check with governing bodies like the SEC or ESMA to assist your organization in meeting the requirements of what they consider to be a "smaller" organization.
To ensure that your organization, regardless of size, gets the most out of financial disclosure, we recommend using our Fluence Disclosure Management platform. This platform is the all-in-one solution for your disclosure needs, leveraging the Microsoft Office 365 user interface and providing you with the power of Word, Excel, and PowerPoint without their major pitfalls.
What are the Benefits of Disclosure?
We have seen how disclosures help the market and investors, but how do these statements benefit the company releasing the information, especially if it has been a down year? Even if you do not have the best financial situation to report, there are still significant benefits to a disclosure.
- Improved Reputation: Operating as an honest organization will not only increase your standing with the public but will help with future business deals as other organizations can tell you operate with complete transparency.
- Better Debt Management: Whether the disclosure is positive or negative, the internal assessment to release the statement will shed light on the debts an organization is carrying.
- Identify and Adapt to Market Trends: A lot can happen in a year, and a financial disclosure can expose how they have been doing business over a period of time, as well as identify any past or present trends that can either lead to problems down the road and need to be tackled right away.
Fluence Technologies: Disclosure Management Simplified
Whether looking for your first disclosure management tool or searching for a better alternative, our Fluence Disclosure Management platform has you covered. We can transfer all of your current settings over to our system in just a few short minutes. Any content, format or linked object change is logged on our system to ensure that you never lose any vital information and can access it quickly.
Financial disclosure is an integral part of the business cycle, and we want to make it as smooth as possible.
Contact us today to learn more.