Corporate Transparency : An Essential Part Of Doing Business Essay

The cause of poor transparency, however, is less important than its effect on a company 's ability to give investors the critical information they need to value their investments. If investors neither believe nor understand financial statements, the performance and fundamental value of that company remains either irrelevant or distorted. Mounting evidence suggests that the market gives a higher value to firms that are upfront with investors and analysts. Transparency pays, companies with fuller disclosure win more trust from investors. Relevant and reliable information means less risk to investors and thus a lower cost of capital, which naturally translates into higher valuations. Of course, there are two ways to interpret this evidence. One is that the market rewards more transparent companies with higher valuations because the risk of unpleasant surprises is believed to be lower. The other interpretation is that companies with good results usually release their earnings earlier. Companies that are doing well have nothing to hide and are eager to publicize their good performance. It is in their best

My recommendation would be to sample years that are passed 2002 and on to get a more accurate result for the study. I felt like there was so much going on with testing before and after the events took into effect. Even though it was a good size of sample and enough quarters from where to gather information from the time frame plays an important role. The Regulation Fair Disclosure that took place in October 23, 2000 made a great impact towards the way information was not allowed to be disclosed. I feel that it took an effect on the results since the information was gathered that year and was dealing with information asymmetry. In Li, Ha and Nabar (2014) they conclude that there is a difference that exists between pre and post regulation fair disclosure. The authors mention how the stock prices after the fact were more precise in relation to stock splits than before regulation fair disclosure took place. Also, with Sarbanes Oxley Act taking effect in 2002 could also have more managers disclosing information more voluntarily than before it took effect. In Aftermath (2015) he states that SOX arose because of the number of scandals that had taken place. So, with this said it shows how the disclosing of information is important and now that it is implemented will help in lowering the risk of having unreliable information. On another note as for the equations that were used throughout the paper I find them quite interesting and understandable. As well as the variables that were used in the tables are clearly defined and the tables do provide evidence to sustain their

A company or organizations, which are not privately, own and do not disclose certain items in their financial statement, this will influence the judgment of the companies’ stakeholders’ ethical behavior and concerns. Companies that do not fully disclose all items possibly charged with fraud. Disclosure notes should be disclose on business statements’ with the correct amounts related to the increase or decrease of an account to present measure of quantities reflected.

In the wake of the major financial scandals, that occurred in 2001 and 2002 the United States Congress passed the Sarbanes Oxley Act (SOX) of 2002. These financial scandals adversely affected the public’s trust in the stock market, therefore passing the SOX helped investors to regain trust in investing in the stock market. Prior to the SOX being passed “neither management or auditors of publicly traded companies were required to evaluate, audit, or publicly report on the effectiveness of internal controls over financial reporting” (Kinney & Shepardson,

Brigham and Lesson (2010) stated, “over the last three decades, the percentage of a company’s value attributable to tangible assets has dropped from 90% to just 25%.” However, intangible assets, reputation included, make up 40-60% of a business’s capitalization. An industry like Big Pharma relies heavily on its reputation. An organizations actions, choices, behaviors, and consequences will influence a stakeholder’s perception. This is a roundabout way for an organization to help determine its own reputation. Word of mouth, past experiences and media coverage will always influence reputation of corporations. In his article in Nature Biotechnology, Mark Kessel (2014) explains, “For companies in the pharmaceutical sector, how stakeholders view companies is influenced primarily by the lay professional media (through print, TV, radio and online) and the internet (blogs and social

Each company must prepare financial statements to provide a comprehensive picture about its past performance and situation for the owners, the managers, the state and other stakeholders as well. In the case of enormous, international public limited companies like Ford and Microsoft these statements and data are public, so anybody can reach them through the internet. Moreover, we can also compute a lot of financial ratios based on these data. If we want to get an authentic frame about the firms, we have to know what these statement and ratios mean. In addition, it’s difficult for the companies that they want to give other picture about their financial status to

1. Openness and Transparency. In the textbook, transparency represents providing clear and equal access of material company information on a regular basis to all investors to allow for informed investment decisions and the ongoing monitoring of the company’s activities. The Satyam scandal erupted when its founder and chairman admitted falsifying accounts of over $1 billion. As the details of what happened unfold, the need for openness and transparency comes into sharp focus.

This paper provides an in-depth evaluation of Sarbanes-Oxley Act, which is said to be promoted to produce change in the corporate environment, in general, by stressing issues of public accountability and disclosure in the financial operations of business. It explains how this is an Act that represents the government 's and the Security and Exchange Commission 's concern in promoting ethical standards in terms of financial disclosure in the corporate environment.

A number of people who have studied this topic have suggested that Sarbanes-Oxley is a beneficial law that can improve financial reporting. Paul Volcker and Arthur Levitt Jr. of the Wall Street Journal and Stephen Wagner and Lee Dittmar of the Harvard Business Review are just a few of them who’s articles helped shape this paper. Julia Hanna’s article on Forbes was also used in writing this paper. Obviously, the Sarbanes-Oxley Act of 2002 was also used in this paper, as well as, the AICPA Audit Committee Toolkit. Peter Yeoh’s article in the International Journal of Disclosure and Governance was also helpful.

The FASB mission is to “establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernment entities that provides decision- useful information to investors and other users of financial reports.” (www.FASB.org)

Furthermore, the proposed ASU will impact all companies that report their financial statements under US GAAP. Some of the disclosure requirements are already part of the current Securities and Exchange Commission (SEC) disclosure requirements, but some disclosure requirements will reveal new information about reporting entities. PricewaterhouseCoopers (PwC) (Spang and Suplee, 2016) warns that “companies should consider how the additional disclosures may be utilized and interpreted by various stakeholders. In addition, compiling the necessary information, particularly for multinational corporations, may be challenging and may require updates to systems, processes, and controls”. Therefore, the implementation of the new standards on the early stages may require additional financial resources from the business entities.

The need for clarification on the board requirements for a majority of independent directors as it relates to corporate governance is of great importance and would be discussed in this write up.

This paper provides an in-depth evaluation of Sarbanes-Oxley Act, which is said to be promoted to produce change in the corporate environment, in general, by stressing issues of public accountability and disclosure in the financial operations of business. It explains how this is an Act that represents the government's and the Security and Exchange Commission's concern in promoting ethical standards in terms of financial disclosure in the corporate environment.

The article discusses that in 1976 the U.S. Supreme Court ruled in one case that omitted financial statement information altering a reasonable investor’s decision proves the material nature of the information. The article continues by describing that lower courts earlier ruled that all financial information whether material or not must have full disclosure in a company’s financial statements. The rejection of the lower courts’ ruling by the U.S. Supreme Court gives the investor the ability to focus on the aspects of the financial statements that are most important by allowing the elimination of minute details (Sauer 2007, 317-357). In essence, this ruling allows for the elimination of financial information below the determined materiality threshold unless otherwise required by the ruling of a regulatory body.

The Purpose of Financial Statements The financial statements of a business are used to provide information about the status of the business, set performance targets and impose restrictions on the managers of the firm as well as provide an easier method for financial planning. The financial statements consist of the Profit and Loss Account, Balance Sheet and the Cash Flow Statement. There are four areas of information, which we can collect from a company's financial statements. They are: Ÿ