Want investor confidence? Make more disclosures

Study finds retail investors want more information in companies’ financial statements

Companies in Singapore may have to make increased disclosures to continue attracting retail investors, according to a study by ACCA Singapore and the Securities Investors Association Singapore (SIAS).

The first part of the study, an online survey conducted in April, polled around 30,000 SIAS and 3,000 ACCA members, mostly retail investors, on the value of audit to them. While the study was aimed at the accountancy sector, its findings also have strong implications for corporate governance and disclosure standards.

Firstly, the survey finds that a company’s audited financial statements are among the top three sources used by investors to guide their investment decisions. This assumes significance when paired with the finding that investors want to see more information in those financial statements: 77 percent of respondents say they want the scope of audit – in other words, the areas that should be covered in audited financial statements – to be increased.

The specific areas investors most want to see more information about are companies’ internal controls and risk management programs, as well as the existence and quality of assets. Clearly, according to David Gerald, president and CEO of SIAS, investors want assurance that a company’s processes are sound before they make an investment decision. ‘They want to be able to piece together sufficient information to put financial numbers in context,’ he observes.

Of even greater interest to investors, it seems, is the disclosure of non-financial information: 85 percent of the survey’s respondents indicate that having access to information about a company’s corporate governance practices and CSR issues, among others, would help them in making investment decisions.

Finally, participants in the study comment that many of the areas where investors want to see more disclosures would be better covered by an internal audit department than by engaging external auditors. This is also the view taken by SIAS, which has stated that companies must carry out both internal and external audits in order to maintain good standards of corporate governance.

While the levels of disclosure suggested by the study’s results are a good indication of what investors want from companies, implementing them may not be practical for all businesses. Small and medium-sized enterprises, in particular, will face hefty cost issues, and extensive disclosures may even be detrimental to companies that, for one reason or another, are unable to live up to investors’ expectations.

For those companies that do have the means and reason to make broader disclosures, however, it seems likely investors will respond positively to them and provide extra information.

‘Most retail investors lack the experience of financial professionals so we hope this report sheds some light on the type of information required to support the investor’s decision making process,’ says Darryl Wee, country head of ACCA Singapore.

The full report can be found here.

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