What is Financial Transparency:
According to the U.S. Securities and Exchange Commission (SEC) which protects investors and regulates the stock and securities exchanges on a federal level, financial transparency means a company disclosing its financial performance to investors.
Why Do Investors Need Financial Transparency:
Investors need financial transparency so that they can make informed decisions with all the relevant information. It is also important for the continued growth of financial markets. After all, would you invest in a company that does not have much information about its financials to the public?
Financial transparency also affects accountants, who must make sure that company financials are accurately portrayed to the public and investors. An example of misconduct in accounting includes the famous Enron scandal, where accounting firm Arthur Andersen was convicted of doctoring and shredding Enron financial documents. Many of Enron’s investors lost money, for some their life savings, and employees from both the defunct accounting firm and energy companies lost their jobs.
Without financial transparency, investors cannot make smart investing decisions which can in turn affect the stock market or company shares negatively.
Written by Allie Chang