The pressing need for standardization in securities market disclosures
The laws do not bestow on shareholders of a company an inherent right to participate in its management; it is the board with which governance and oversight of management is entrusted. Shareholders, especially public shareholders, inevitably have to depend on the disclosures made by entities to the bourses.
When it comes to disclosures, comparability of information is an essential aspect to get a sense of the relative impact and implication. If divergent practices and interpretations exist, it could lead to misinterpretation of the available information. For example, when it comes to disclosure of material events, in respect of those events for which the boards need to apply the test of materiality, what is material for one company’s board may not seem material for another even though they may belong to the same sector. Here is where standardization of practices could lead to better understanding of information.
To draw a parallel, it is because the accounting standards are mandated that the stakeholders can be certain of what the various elements in the financial statements mean. And, most importantly, even if they are not accounting experts, they can be reasonably certain that the elements contained in the statements of different entities are comparable. The auditing standards ensure that the respective information of the entities have been subject to similar rigours of examination by the different auditors. Similarly, when the practices surrounding identification and reporting of disclosures and other essential compliance under the securities market regulations are standardized, and best practices are identified and enforced, reliability and comparability of disclosures is bound to be enhanced.
The Securities and
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