The Role of the Disclosure Framework - Myassignmenthelp.Com

Question: Discuss about The Role of the Disclosure Framework. Answer: Introduction The word Disclosure essentially refers to the act of releasing all linked information that a company has generated in relation to an investment decision. In order to make the investment proposition fair, companies should tend to release all kinds of information that is both pros and cons regarding that particular investment proposition so that the investors come to know about the investment in which he is planning to invest. In this study the necessity of a continuous reporting regime has been discussed. Company policies regarding disclosure are very common in Australian law. As mentioned in the question disclosing entities are regulated by the Corporations Act (2001), Accounting Standards and ASX requirements. The continuous disclosure requirements in ASX LR 3.1 require timely reporting to the ASX of significant events and financial information that is likely to impact the price of the entitys securities. Disclosures not only help in improving the capital market but also assist in o ptimum allocation of resources in the economy. Disclosure Obligations Most of the companies have come to know about the accounting concept of disclosure because of the news headlines that sometimes come into view due to the large amounts of fine that companies have to pay due to not disclosing or withholding information that ultimately affected the investors (Admati and Pfleiderer 2000). The disclosure obligations are mentioned in the Corporations Act in subsections 674(2) and 675(2). Some provisions that require disclosures or do not require disclosures as the case may be are listed companies conducting discussions to acquire business might not require disclosures. Even if the company has not taken any decision regarding the acquirement of business, then also the no disclosure will be required. A company which is listed and is still negotiating for acquiring the business and there has been a newspaper article which clearly states that these discussions are being conducted. In such a case disclosures are required (Matolcsy, Tyler and Wells 2012). According to the ASX Listing Rule 3.1 the information that a listed company has to disclose, so that a person with utmost reasonability will most probably understand or expect a material effect on the value or price of the securities are, transactions that would result to an important change in the scale of activities of the organization, information regarding disposal or acquisition, entry or termination of an agreement which is material in nature, forwarding or expecting a notice in order to create a takeover and much more such information (Hsu, Lindsay and Tutticci 2012). Market Sensitive Information A disclosure or information may be market sensitive in nature. This is a very important aspect of a disclosure because a listed company might avoid certain information, giving the excuse that it was not able to analyze or it thought that the particular information was not market sensitive that is it would not have any effect on the mindset of the investor who tends to invest on a particular proposition. In such case, a higher authority or the concerned authority of a listed company may have to take a decision as to whether to disclose specific information or not might be ascertained with two important questions (Cumming and Johan 2013). These questions are that, would the particular information be able to influence the decision of buying or selling securities in the organization at the current market price and the next question that the officer in charge needs to ask himself is that would he or she be vulnerable to insider trading if an investor or a stakeholder was to buy or sell se curities of the organization at the current market price, when it is known that the information is not disclosed. If the answer to any of the two above mentioned questions is yes then the officer in charge very importantly has to reanalyze and think over the matter as it is a well cautioned indication that the particular information might as well be market sensitive had most probably does not fall into the exceptions (Shi, Pukthuanthong and Walker 2013). ASX also lays down the rules regarding the time period within which the information has to be disclosed. A time period will most probably pass from the time when an organization at first falls under the obligation to give information to ASX under Listing Rule 3.1 and when it in real is gives that particular information to ASX via means of a market announcement. This delay in time might not be due to reluctance to disclose information always. Some announcements might be prepared very quickly and submitted to ASX more quickly, while o ther announcements might take much longer to complete. The matter to be inspected and judged in these cases is, if the organization is adhering to the rules and regulations of the guidelines laid down by ASX as fast as possible without postponing it to later. Necessities to have a continuous reporting regime for disclosure Disclosure as a process is very important both on the part of the stakeholder or investor and also on the part of the entity as it leads to goodwill of the firm in the market. A proper disclosure also leads to proper investors. A continuous reporting regime for disclosure is very important and needful because a continuous presentation of reports regarding investment propositions in the company leads to better information on the part of the investors so that they can evaluate and analyze the investment propositions and take proper decisions. Disclosure that is listed for the secondary markets is equally significant after an entity issuing securities has made its initial offering of securities (Clinton, White and Woidtke 2014). Continuous reporting of high security or intrinsically private information to the outside marketers on a regular basis is very important after listing of a particular security. The disclosure of events material in nature on the basis of ad hoc alone is insuffici ent for investors or stakeholders in order to make decisions regarding investment propositions (Kross and Suk 2012). Even though it is laid down by ASX that once the material events occur, it is required to be disclosed to the public via means of public offering or announcements, some disclosures may take much more time than expected (Cox, Hillman and Langevoort 2016). This does not necessarily mean that the entity is purposely delaying the process of disclosure. These disclosures are called ad hoc disclosures and investors are unable or under informed to make proper investment decisions on these kinds of investment propositions related to the disclosures alone (Gehlbach et al., 2012). Due to this reason, it is very important for entities issuing securities to create certain periodical presentations, like annual reports and interim reports, under which specifically claimed disclosures must be presented at continuous intervals to the public. This continuous reporting process of discl osing crucial information help stakeholders or investors in decision making and continuous check or monitoring of the listed securities of the concerned company and also helps in comparison of the listed securities of the other companies that are in competition with the same entity in the market (Muniandy and Ali 2012). In spite of the Principles for Ongoing Disclosure has laid down general guidelines for continuous disclosure, specific guidelines for periodic disclosure also has utmost significance in promoting continuously higher quality disclosure that are present in the reports of periodic intervals of entities whose securities are being traded in the domestic, as well as international markets. The important components of disclosures that reflect the present status of an organization are annual reports with financial statements, managements discussions, transactions in relation to material management, disclosure related t compensation, disclosure related to corporate governance, market sensitive instruments disclosure, disclosure in relation to disclosures, interim reports (Russell 2015). But the most important point to be kept in mind while analyzing the importance of disclosures or continuous reporting is the criteria for reporting a disclosure which pertains to the information disclosed in the reports. The information should reflect a true and fair view of the company. The reports published by a company on its website should very importantly match with the auditors report. This will definitely increase the managements concern to monitor and control the quality of the financial statements and this further explains the importance of continuous reporting (Fasterling 2012). Some authorities may be of the opinion that the disclosure of material information results in unjustified skepticism among the public, it may reduce the confidence of the stakeholders or investors in the fairness of the entity concerned. But in reality proper disclosures help investors in avoiding the insider trading or abusive use of information by an organization (Doshi, Dowell and Toffel 2013). Conclusion As it is understood from the above study continuous reporting of disclosures are very important. It does not only help the investors in getting a true and fair view of the company but also indirectly aid the company by helping it to avoid exorbitant fine or fees that investors claim due to wrong or no information disclosed by the entity. Therefore companies should very importantly adhere to the guidelines in the Corporation Act or the ASX so that they can enjoy the benefits of continuous reporting. References Admati, A.R. and Pfleiderer, P., 2000. 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