We cover “full disclosure” this week. Read the article “The 109,894-Word Annual Report; As regulators require more disclosures, 10-Ks reach epic lengths; how much is too much?” by Vipal Monga And Emily Chasan that was published on 1 June 2015 in the Wall Street Journal Online (see below). Why do you believe businesses often over-disclose? Include the following in your discussion: What are good reasons supporting this decision? How does it affect the financial statements and annual reports? Why can this be problematic? In your opinion, how should a company strike a balance between disclosing too much and disclosing too little? ”The 109,894-Word Annual Report; As regulators require more disclosures, 10-Ks reach epic lengths; how much is too much? ”By Vipal Monga And Emily Chasan1 June 2015The Wall Street Journal Online Copyright 2015 Dow Jones & Company, Inc. All Rights Reserved. General Electric Co.’s chief financial officer was taken aback by the industrial conglomerate’s 246-page annual report. The 10-K and supporting documents his finance team and others at the company produced was meant to give investors a comprehensive picture of GE’s businesses and financial performance over the previous 12 months. It did everything but. Packed with text on the company’s internal controls, auditor statements and regulator mandated boilerplate on inflation, recession and currency volatility,” the 2013 annual report was 109,894 words long. Not a retail investor on planet Earth could get through” it, let alone understand it, said GE finance chief Jeffrey Bornstein……panies are spending an increasing amount of time and energy beefing up their regulatory filings to meet disclosure requirements. The average 10K is getting longer about 42,000 words in 2013, up from roughly 30,000 words in 2000. By comparison, the text of the Sarbanes-Oxley Act of 2002 has 32,000 words. The finance department at GE, as well as Athena health Inc. and Abercrombie & Fitch Co., among others, spend several weeks every quarter updating filings to comply with securities rules, which they say is a costly undertaking. Athena health, a provider of electronic health records, has three full-time employees to help with the increased disclosure requirements, said Karl Stubelis, chief accounting officer and controller of the Watertown, Mass., company. That’s up from just one two years ago. Some companies wonder whether investors benefit from the additional information. Their question: How much is too much? Regulators at the Securities and Exchange Commission and the Financial Accounting Standards Board say they are working on projects to reduce the volume of useless information in company filings, while increasing transparency. SEC Chairman Mary Jo White has made disclosure effectiveness” a priority since taking office in 2013. And this year, agency officials met with representatives of several companies to discuss specific ways to cut the fat out of their corporate filings, said Keith Higgins, director of the SEC’s Division of Corporation Finance. Part of the reason for the ballooning filings: More U.S. companies are operating internationally, exposing their investors to new geopolitical risks. In addition, many also use abstract financial instruments such as derivatives and sophisticated hedging tactics to protect themselves from swings in currency and commodities markets……plexity is a reality we have to live with,” International Accounting Standards Board Chairman Hans Hoogervorst said in a February speech in Zurich. In 2013, the organization, which sets accounting rules outside the U.S., began working on a plan to eliminate some boilerplate disclosures that it believes aren’t valuable to investors. Few individual investors read SEC filings cover to cover. The retail investor isn’t going to read a 10-K filing,” said Joseph Amato, chief investment officer at Neuberger Berman, which manages $251 billion of assets. He isn’t eager for companies to reduced is closures. Roughly-two thirds of all stock in the U.S. is owned by institutional investors such as pension funds, mutual funds, and insurance companies, according to research from the University of Pennsylvania’s Wharton School. Some of these big investors want companies to disclose even more information. Mr. Amato said he would like for companies to provide more details about their expenses and the profitability of individual business lines. On the other hand, he said he finds some of the SEC-required disclosures about a company’s general risk factors” unrevealing. Tim Loughran, a finance professor at the University of Notre Dame’s Mendoza College of Business, said companies are doing data dumps” on investors who, in turn, struggle to wade through the filings’ to find what they view as truly relevant. But at the same time, he said, he worries that some companies might back a simplification campaign to avoid publishing unflattering information. At clothing retailer Abercrombie & Fitch, based in New Albany, Ohio, 20 people review each filing, or disclosure document, before it travels up the ladder to management. General Counsel Robert Bostrom said much of the information in filings is aimed at plaintiffs’ attorneys who might consider suing the company on shareholders’ behalf. The risk-factors section in 10-K filings, mandated by a 2005 overhaul of the Securities Act of 1933, may be less rational” than it could be, Mr. Bostrom said. It becomes a way to create the most defensive compliance document that you can,” he added. At GE, compiling information for annual reports takes the finance department about two months, requiring either input or attention from about 200 people. Then, CFO Mr. Bornstein signs off on it, along with controller Jan Hauser, and ultimately Chief Executive Jeffrey Immelt. Forty percent of GE’s roughly five million shareholders are individuals, rather than big funds, Mr. Bornstein said. But just a handful of investors called GE’s investor-relations department with questions about the company’s 2013 annual report, he said. That year’s report was downloaded800 times from GE’s website. Mr. Bornstein said both were signs that many investors didn’t read the 10-K in depth. So, the following year, Mr. Bornstein sent his finance team back to the drawing board. He told them to give investors the GE story as simply and clearly as possible. The team came back with an annual report that included 15 introductory pages of charts, on revenues, earnings-per-share growth and employees. Charts might be easier for investors to digest than lengthy text, he said. GE’s 2014 10-Kat 103,484 words and 257 pages was downloaded from its website3,400 times, he said. Next, for 2015, Mr. Bornstein hopes to simplify the annual report’s footnotes, which stretched to 42,000 words last year.

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Businesses often overdisclose for several reasons Compliance with regulations Companies have to meet disclosure requirements set by regulatory bodies like the Securities and Exchange Commission SEC Fa... View the full answer