Financial Disclosure and Reporting - A Comprehensive Guide
| 5 min read | by Alex HoffmannEffective financial disclosure and reporting ensures transparency, which is critical for investors and stakeholders when evaluating the financial health and prospects of a company.
Publicly listed companies are required by regulation, law, listing rules, or common market practices to publish two types of reports:
Types of Reports
1. Regular Standardized Reports
Regular standardized reports come in the form of annual, semi-annual, and quarterly reports, providing key financial reporting on a company's operations and performance.
Annual Report
In most jurisdictions, companies must prepare and publish annual financial reports . An annual report is an extensive document prepared by the company and its auditors. It includes all relevant financial information, accounting notes, a description of the business, products, market, and management team. The report also provides a comprehensive disclosure of risk factors, legal cases, contingencies, etc., faced by the business.
- Length: ~100-150 pages
- Timing: Published around 100 days after the financial year-end
- Audit: The report is audited by the company's auditor.
Examples:
Interim Reports
Most jurisdictions require companies to publish interim financial reports, typically quarterly , though some allow for semi-annual reports. Compared to annual financial reports, interim reports are shorter and contain fewer disclosures. However, they retain key financial information and accounting notes.
- Length: Usually ¼ to ½ of an annual report
- Timing: Published 30-45 days after the end of the period
- Audit: Generally not required, though some companies may choose to have them audited.
Examples:
2. Ad-Hoc, Unstandardized Reports
Ad-Hoc, unstandardized reports, often in the form of press releases, are issued for various reasons, such as leadership changes, new share issuance, and significant financial updates. These reports provide additional financial disclosures beyond the standardized reports, often in a more detailed and timely manner.
Types of Unstandardized Reports
- Leadership Changes: Companies must report any changes in their leadership team or board of directors. This includes disclosing appointments, resignations, and changes to contracts or remuneration of Named Executive Officers (NEOs), such as the CEO or CFO.
- New Share Issuance: When a company issues new shares, it must disclose this financial information to the public.
- Mergers and Acquisitions: Companies must report any credible merger or acquisition offers in their financial disclosures, though there is some debate about the timing of such announcements.
- Debt Issuance: Substantial debt issuances must also be disclosed.
- Performance Updates: Significant changes in short-term performance, such as profit warnings or updates to revenue and profit guidance, require financial disclosure. While companies have some flexibility in evaluating whether to issue a performance update, the general guideline companies have followed over the last few years is to issue such an update when investor expectations deviate substantially from the company's internal forecasts.
Examples:
Publication Rules
The publication of financial disclosure documents is governed by a mix of regulations, laws, listing rules, and market practices, which vary by jurisdiction. Compliance with these rules ensures accurate and timely financial reporting.
Key Regulatory Bodies
In many jurisdictions, the capital markets authority (e.g., SEC in the U.S., BaFin in Germany, FCA in the UK) defines most of the rules governing financial disclosure. Stock exchange operators, such as NYSE, NASDAQ, and LSE, may also impose additional requirements.
In jurisdictions like the US, EU+UK, Canada, Australia, and New Zealand, reports are typically published in English, even when it is not the primary language. In some Asian markets, reports are published in both the local language and English, ensuring full financial reporting transparency.
Foreign Listings
A company may choose its stock exchange listing freely, though most tend to list in their home country if it has a functional stock market. However, some companies pursue foreign listings to access better capital markets, such as the US or UK.
Examples foreign listings:
- Spotify and Stripe chose US listings over their home countries.
Publication Venues
US
In the US, all financial disclosures must be published through EDGAR (Electronic Data Gathering, Analysis, and Retrieval), which was established by the SEC in 2006. EDGAR is the centralized repository for all filings by US-listed companies and is fully accessible to the public.
- Unique Identifiers: All companies in EDGAR have a 10-digit Central Identifying Key (CIK).
- Accessing Filings: Filings are available via the EDGAR API and programmatically accessible at specific URLs.
Examples:
Filing Format - XBRL
XBRL (eXtensible Business Reporting Language) is a standardized language for organizing and exchanging business and financial data in a machine-readable format. It improves efficiency, accuracy, and reliability in financial reporting. XBRL is based on XML and tags financial data for easy classification and processing by computers, allowing for faster analysis by investors, regulators, and other stakeholders.
Key Features:
- Machine-Readable: Allows for easy comparison and analysis.
- Standardized Vocabulary: Provides a common set of financial terms, known as taxonomies, to ensure consistency in financial reporting.
Useful links:
Other Jurisdictions
Outside the US, most countries rely on companies or stock exchanges to host financial disclosures on their websites. These reports are often provided in polished PDF formats, and regulators are less prescriptive about how reports are formatted or published.
Alex is the co-founder and CEO of Marvin Labs. Prior to that, he spent five years in credit structuring and investments at Credit Suisse. He also spent six years as co-founder and CTO at TNX Logistics, which exited via a trade sale. In addition, Alex spent three years in special-situation investments at SIG-i Capital.