Definition of Disclosure and Its Objectives

Definition: Disclosure is one of the fundamental accounting principles that requires companies to reveal all material financial and operational information in their financial statements and accompanying notes. It includes disclosure of events, transactions, and circumstances that affect the financial position, business results, or cash flows, whether quantitative or qualitative, with the requirement that information be useful for economic decision-making.

Objectives:

Transparency and Clarity: Providing complete, clear, and understandable information to users to comprehend the company's true financial position, avoiding ambiguity or misleading presentation. This includes disclosure of accounting policies followed and estimates and assumptions used.

Protecting Investors and Creditors: Enabling investors and creditors to make informed investment and credit decisions based on accurate and comprehensive information. Helps reduce risks of making wrong decisions due to lack of information or inaccuracy.

Enhancing Market Confidence: Building confidence in financial markets through transparency and credibility, encouraging investment and reducing capital costs. Contributes to market stability and prevents financial crises resulting from non-disclosure.

Achieving Management Accountability: Holding management responsible for full disclosure of company performance, risks, and strategies, enhancing good governance and limiting abuse of managerial authority.

Compliance with Legal Requirements: Ensuring compliance with regulatory body requirements and local and international accounting standards, avoiding penalties and legal accountability. This includes requirements of stock exchanges and relevant government entities.

Facilitating Comparison and Analysis: Enabling users to compare performance between different companies and across multiple time periods, helping evaluate relative efficiency and effectiveness and identify trends and developments in performance.

Types of Financial Disclosure (Mandatory and Voluntary)

Financial disclosure is classified into two main types based on the source of obligation and disclosure purpose:

Mandatory Disclosure: Information legally required by regulatory bodies and accounting standards, with penalties for non-compliance, including:

• Basic Financial Statements: Balance sheet, income statement, cash flows, changes in equity
• Supplementary Notes: Accounting policies, estimates, related party transactions
• Periodic Reports: Quarterly, semi-annual, and annual
• Governance Reports: Board of directors report and auditor's report

Voluntary Disclosure: Additional information provided by companies voluntarily to enhance transparency and improve image before investors, including:

• Future Forecasts: Profit, revenue, and project forecasts
• Environmental and Social Reports: Social responsibility and sustainability
• Management Analysis: Performance and strategy explanation
• Segment Information: Additional details about business units
• Performance Indicators: Non-financial measures and industry standards

Basic Difference: Mandatory is legally required with unified standards, while voluntary depends on management's desire to enhance transparency.

Applications of Disclosure in Accounting Operations

The disclosure principle applies in financial statements through stating accounting policies followed and estimates and assumptions used, with disclosure of subsequent events after balance sheet date that affect financial position. In inventory transactions, disclosure is required about valuation method used, damaged or slow-moving inventory, and related obligations.

For fixed assets, disclosure includes depreciation methods applied, revaluation, impairment, and liens or restrictions imposed on them. Regarding liabilities, disclosure includes contingent liabilities, guarantees provided, loan terms, and maturity dates.

Related party transactions require disclosure about relationship nature, transaction values, and terms applied. In capital, disclosure must include details of issued shares, changes in capital structure, and rights of each class. Revenues need disclosure about their sources, recognition methods, and long-term contracts, plus various risks such as credit, market, and liquidity risks and how they are managed.