Today, companies operate in a complex arena, navigating a tangled web of regulations and reporting requirements. Compliance is essentially the minimum level set by law and statute. Yet, more businesses are coming to see that merely staying within the letter of the law no longer offers much of an opportunity for success. Companies find numerous benefits of the “beyond compliance” voluntary disclosure accounting, very much worth the effort.
Voluntary disclosure accounting essentially entails the voluntary disclosure of information over and above that called for by accounting standards, stock exchange rules, or statutory law. The scope of such information is large, ranging from revenue streams, operational metrics, and segment performance, to forward-looking statements, risk disclosures, and even disclosures relating to environmental, social, and governance (ESG) issues. Such disclosures are motivated not by external pressure but by the strategic intent to nurture a stronger relationship with stakeholders.
Arguably, one of the very few meaningful strategic benefits the voluntary disclosure brings is creating and solidifying investor confidence. At a time when information asymmetry can lead to suspicion, any company willing to disclose additional information in comparison to its peers effectively sells the concept of openness and integrity. This may eventually lead to a reduced cost of capital once investors are convinced that less risk is attached to the investment, thereby justifying their acceptance of a reduced rate of return. Greater transparency also attracts a broad base of investors, including those who consider ethical or sustainable investment worthy of comprehensive reporting on all aspects, including non-financial measures. As an instance, a Canadian mining company could voluntarily disclose in detail all aspects concerning environmental remediation or community engagement programs that would interest investors who attach equal importance to sustainability and financial returns.
Proactive voluntary disclosure accounting also contributes significantly towards building a firm’s stature and brand image beyond investor circles. In an era where corporate conduct is under scrutiny, an image of transparency serves to distinguish an organization in a congested market. This could translate to increased customer loyalty, stronger supplier relationships, and a better employee value proposition, which all ease the recruitment and retention of employee talent. Transparent companies regarding their financial health, strategic direction, and even issues with operation are generally seen as more credible and trustworthy across the industry.
Moreover, voluntary disclosures help manage risk and can preempt budding crises. Choosing to speak openly about potential issues or challenges upon their disclosures sets a company within its own narrative and views itself just. Hence, potential public relations disasters can be staved off when seeming minor issues might, otherwise, be thrust into limelight and blown out of proportion. For example, such companies could prospectively disclose detailed cybersecurity measures or data privacy protocols-in another consideration they could be implicated by issues after a change in regulatory environment or widespread concern by a segment of the public.
Lastly, the rigor of preparing for voluntary disclosure accounting can foster strong internal efficiencies and strategic insights. In essence, the collection, verification, and preparation of additional data for the public will compel companies to assess their internal processes, methods for data collection, and internal performance measurement criteria. This internal discipline allows for reviewing inefficiencies; highlighting areas for improvement; and making decisions that are better informed at all levels along the decision-making rivers of this organization. Basically, it mounts a continuous identification process that ultimately pushes the company to operational excellence and strategic enlightenment.
In short, a voluntary disclosure accounting choice opens the front door of opportunity unchecked by carrot or stick. It stands on strategic choice-the choosing of transparency to curtail risk, attract capital, polish reputation, and inspire internal development- all of which put the company into a position for success in an increasingly critical global economy.
