Whoa! Too much information!

From Kim:

http://www.accountingtoday.com/news/Financial-Disclosure-Complexity-Overwhelms-Investors-60791-1.html

This article talks about a survey taken by KPMG LLP and the Financial Executives Research Foundation addressing the increase in disclosures and the resulting effect it has on investors and financial executives. According to the study, the volume of disclosures has increased 16 % over the past six years. This alarming increase in disclosures, along with a 28% increase in footnotes, has made it difficult for investors to absorb the large amount of information. Some argue that this much disclosure is necessary to justify the complex accounting transactions taking place, while other believe this is just a tool for companies to hide important information by clouding it with excess, useless information. What do you think?

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About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

4 comments

  1. Disclosure requirements are expanding which ultimately is not only good for accountants (job security) but good for the Financial Statement users. One thing that I find particularly exciting as far as transparency with financial statements is the use of XBRL. (eXtensible Business Reporting Language) Ultimately through the use of XBRL coding, users will be able to see exactly what is going on in the financial statements and it will be easier to compare the results within an industry where disclosures may be similar.I think any added disclosures by a company is probably a good thing, and hopefully that information will be represented in a useful way.

  2. The increase in disclosure requirements is a good thing, especially due to the complexity of accounting standards, transactions, and financial instruments. Although disclosures and footnotes may be confusing to the average person, they contain invaluable information that will allow anyone analyzing the financial statements to make the necessary adjustments to the numbers presented and find out how the company is really doing. It is for this reason that I think the amount of disclosures and footnotes should not be decreased and the more the better.

  3. I was talking to Professor Holtzman in greater depth about this article and he told me that he was on the Research Committee of FERF and that he actually participated in the review process for this paper. I thought that was very interesting and felt the need to add additional comments about this topic. It appears that the general consensus after reading this article would be that the increase in disclosures and footnotes is extremely beneficial because it gives financial statement users more information. However, what I find fascinating is that according to the article, it is having the opposite effect by leaving investors and financial executives feeling overwhelmed. While I want to believe that there is never such a thing as providing too much information, if the average investor is having such difficulty absorbing the additional information because it is not “getting to the point”, of what use is this overload of information?

  4. At first glance the great amount of information may seem overwhelming; however, in this case more is better. For so long, investors have wanted more information to make sure they have sufficient information to base their decisions on and now that they have it, they are overwhelmed. There are many techniques they can use to sort out the information from what is necessary to them to what is not. What may be invaluable to one person may be valuable to another. The added disclosures should be welcomed, as long as it is meaningful information and not filler.

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