Transparency is essential to risk assessment

Disclosure and transparency are the partners of good governance. They demonstrate the quality and reliability of information -- financial and non-financial-- provided by management to lenders, shareholders, and the public.

Why disclosure and transparency matter

• Empirical evidence indicates that high standards of transparency and disclosure can have a material impact on the cost of capital.
  
• Reliable and timely information increases confidence among decision-makers within the organization and enables them to make good business decisions directly affecting growth and profitability.
  
• Information also affects decision makers outside the entity--shareholders, investors and lenders-- who must decide where and at what risk to place their money.
  
• The information a company provides should show decision-makers and outside interests whether and to what extent corporations meet legal requirements.
  
• Disclosure helps public understanding of a company's activities, policies and performance with regard to environmental and ethical standards, as well as its relationship with the communities where the company operates.
  
• Disclosure and transparency, as well as proper auditing, serve as a deterrent to fraud and corruption, allowing firms to compete on the basis of their best offerings and to differentiate themselves from firms who do not practice good governance.
  
• Research has demonstrated that disclosure and transparency also enhance stock market liquidity.

Disclosure should include material information - information whose omission or misstatement could influence the economic decisions taken by the users - on:

Company objectives

• Major share ownership and voting rights
  
• Members of the board and key executives
  
• Governance structure- in particular the division of authority between shareholders, management and board members
  
• The company's financial and operating results (Audits should be conducted by an independent auditor in order to provide an objective assurance that the financial statements have been properly prepared and presented)
  
• Material issues affecting employees and other stakeholders
  
• Managerial compensation
  
• Related party transactions
  
• Forseeable risk factors