The reporting and disclosure required by publicly traded companies is under fire, because there is a concern that these requirements may not be enough. Whether they accurately represent company performance to stakeholders and investors is the main concern for those who are worried about the degree of required reporting. Competing globally is also part of the issue, as some are now wondering whether the global business environment affects those regulations and the businesses that must abide by them.
Reporting and Disclosure: Publicly Traded Companies
Currently, a publicly traded company in the United States must produce a form 10-K each year (Dignam & Lowry, 2006). This is required by the Securities and Exchange Commission (SEC), and provides a comprehensive overview of the company and its financial health. The 10-K is not the same as the yearly report that is produced for shareholders of the company. Depending on the size of the company, it is possible that other forms beyond the 10-K must be filed, as well (Berezin, 2005). While some are uncertain as to whether the current reporting and disclosure requirements are sufficient for companies that are publicly traded, the form 10-K is dozens of pages and encompasses a great deal of information. Company background information is provided, along with financial statements that have been audited, subsidiaries, equity, organizational structure, the compensation paid to executives, and other things (Berezin, 2005). From all of that information, it would seem likely that a potential stakeholder or a potential investor would be able to determine whether the company's performance was acceptable.
If a potential investor or stakeholder was to take that information and look back through it for several years, a trend could be established that would help determine whether the company was moving in the right direction and was a solid investment (Sullivan & Sheffrin, 2003). Because there is a high degree of transparency in financial reporting and accounting standards in the present day, the disclosure requirements appear to be sufficient for those who want to invest in publicly traded companies. There is not much other information that could easily be provided that would not reveal too much information about the company to people who might choose to use that information in ways that could negatively affect the company. While stakeholders and investors (and those who might become stakeholders and investors in the future) deserve to have good information about a company, other companies do not need information that could be used in order to harm the first company in any way. Too much public information can destroy the competitive edge held by any business (Berezin, 2005).
When it comes to competition in a global environment, the over-disclosure of information is particularly problematic. Not all countries have the same reporting and disclosure requirements as the U.S., and many countries do not require as much information to be made public (Dignam & Lowry, 2006; Sullivan & Sheffrin, 2003). That can put U.S. companies at a disadvantage when they have to provide so much financial information compared to companies in other countries. While investors certainly need information they can use to make sound financial decisions, that information should not come at the expense of the company and its ability to survive in the marketplace (Berezin, 2005). Where competition is concerned, the less that is known about the inner workings of a company the better. That lack of knowledge means that the company will not have as many worries about other companies learning too much about them and the way they work (Berezin, 2005. Their financial health should not be the topic of discussion at their competitors, but the requirements to provide so much information are putting companies at risk.
This can be a serious issue with which to deal, because it is not possible to simply stop giving out financial information - for two reasons. First, the 10-K and other financial and company health forms are a government requirement for publicly traded companies in the U.S. And cannot just be ignored. Second, if the company wants to attract stakeholders and investors it must provide information that is enticing to those people. The only way to get them interested in the company is to show them that the company is solid, stable, and making money. The financial documentation that provides that information has to be clear, concise, and official, because investors are not going to take the company's word that the company is doing well. That makes sense, of course, but complicates things for the company that is trying to keep its "personal" and financial information away from the prying eyes of its competitors, who might find ways in which to use that information.
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