Reporting and Disclosure

In: Business and Management

Submitted By kmj66273
Words 1027
Pages 5
International Accounting: Assignment 4
Chapter 5: Reporting and Disclosure
Strayer University

What is transparent reporting? Transparent reporting when speaking on financial statements means financials statements of high quality. These financial statements are clear, easily understood, frank and candid. Management makes decisions based on financial reports. So, it is the duty of the investor to understand the importance of transparent financial data when considering their choices. (http://ezinearticles.com/?Importance-Of-Transparency-In-Financial-Reporting&id=376424)
Explain how transparent financial reporting (a) protects investors and (b) improves market quality. Investors face a fundamental problem when making decisions. Each one has to ask themselves two questions. 1. What return is to be expected from this investment? 2. How much risk will I incur? Any investor likes high returns, with minimal risk.
If you can reduce an investor’s risk, then the company can acquire more capital at a much lower cost. However business is essentially risky. So how can risk be condensed for an investor? A method is to generate diverse types of investment securities (debt, preferred stock, and common stock, for example). But these securities do not get rid of business risk, they just alter it. When evaluating business threats and probable return, investors tackle an additional type of risk. This is a risk of the unknown. In the business world, risk of the unknown arises while an investor is not able to evaluate business risk or anticipated return, or both, with self-assurance. This risk is very real. Investors progress with caution by demanding higher returns. Financial statements aid investors by reducing risk of the unknown.
Investors want a financial statement that gives them a map of relevant information. It must be…...

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