There is no-one to disregard the value of transparency in financial reporting, because people make big decisions in connection with investments based on financial reporting. Every investor wishes that they should be able to get more, better and transparent specifics of the financial data from the company. Actually, it’s the quality of report, which helps investors for making certain financial investment. Irony is some companies prepare financial reports, what are tools for giving insight towards the investor, such that rather than providing required information correctly they skillfully hide information. It is advisable to the investors that those companies who don’t understand the value of transparency in financial reporting must be avoided. Making investments such companies is much more risky and fewer valuable.

Meaning Of the phrase Transparent;
Before discussing importance of transparency in financial reporting, let us first determine what the term transparent means. The very best concept of transparent in business circles is financial statements good quality. There are many definitions in the dictionary. However, established track record here are “very clear,” “easily understood,” “candid” and “frank.”

Let’s see the importance of transparency in financial reporting with the help of an example. Think about two companies having similar financial leverage, market capitalization and overall market risk exposure. Skip over how the earnings, growth rate of earnings and Return On Capital (ROC) can be same. They have got just one difference understanding that only difference is quite crucial for the market analysts. First firm is running merely one business and also the financial reporting is not hard to be aware of. On the other hand, second clients are linked to running several kinds of businesses and contains complex financial reporting. Now you would like to prefer making acquisition of recognise the business. Odds are more that experts will favor the 1st company as a consequence of simplicity and transparency in financial reporting.

Companies, that view the significance of transparency in financial reporting, may also be kept informed concerning the psychology of the investors. A complex and opaque financial reporting gives no clue concerning the true risks involved and real fundamentals from the company. Listed here is a simple instance of this. An important indicator of future expansion of an organization is how it’s invested the amount of money. When after checking out the financial statements, there is not any concrete specifics of the investments made by the corporation because of so many holding companies, then evaluating investments becomes difficult. Obscure statements also hide the level of debt, thereby also hiding in the event the firm is on the point of bankruptcy.

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