What is 'Disclosure'
Disclosure is the act of releasing all relevant information pertaining to a company that may influence an investment decision. To be listed on major U.S. stock exchanges, companies must follow all of the Securities and Exchange Commission's (SEC) disclosure requirements and regulations. To make investing as fair as possible for everyone, companies must disclose both good and bad information.
BREAKING DOWN 'Disclosure'Disclosure items, as outlined by the SEC, include things that relate to a company's financial condition, operating results, management compensation and other important areas. Disclosure requirements initially came about with the passing of the Securities Act of 1933 and the Securities Exchange Act of 1934. Since then, additional acts like the Sarbanes-Oxley Act have furthered the requirements of disclosures by a public company.
The need for specific disclosure requirements came about because selective disclosures used to put investors and company stakeholders at a disadvantage. For example, Insiders would use material nonpublic information for their own gain at the expense of the general investing public. Clearly outlined disclosure requirements ensure that information is adequately disseminated by a company, so everyone is on an even playing field.
Companies are not the only entities that are subject to strict disclosure regulations. For example, brokerage firms and analysts must also disclose any sort of information that they have that relates to investment decisions. To limit conflict of interest issues, analysts must disclose any equities that they own.
Disclosure Requirements Implemented by the SEC
The SEC requires that all publicly traded companies prepare and issue two annual reports: one for the SEC itself and one for the company's shareholders. These reports come in the form of 10-Ks.
Any company seeking to go public must disclose information as part of a two-part registration, consisting of a prospectus and a second document that contains any other material information, such as a company-supplied SWOT analysis of the competitive environment.
The SEC imposes stricter disclosure requirements for firms in the securities industry. For example, company officers of investment banks must make personal disclosures regarding the securities they own as well as securities owned by family members.
An Example of a Disclosure
On Target Corporation's first-quarter 2015 investor report, the company highlighted its after-tax return on invested capital (ROIC) as a positive. As a footnote, the company added disclosures regarding this number to clear up any confusion for shareholders. The disclosure denoted the limits of non-GAAP financial measures such as ROIC, and provided a schedule that included the calculations for the company's ROIC.