This article views a company as a black box. It then goes on to examine whether the present form of corporate financial reporting enables shareholders to take a peek into the black box.

One of the primary objectives of corporate financial reporting is to satisfy the information needs of various stakeholders. As pointed out by the Kumara Mangalam Committee on Corporate Governance, stakeholders are claimants like shareholders, the government, lenders, creditors and so on. Being owners of the company, shareholders are the most important stakeholders. In a company, ownership is split in terms of equity shares that can be traded in the stock market (secondary market). In case some shareholders want to liquidate their holdings, they can do so in these markets; and, when sold, buyers of those shares would become the new owners of the company. The presence of active secondary markets for shares ensures flexibility of ownership of companies. Perhaps, such a distinct feature plays an influential role for a wide acceptance and dispersion of companies' ownership. In fact, the growth of joint stock companies across the world went hand-in-hand with the developments of secondary markets in their respective countries.

Generally, shareholders of a company have limited liability in the sense that they will lose only a part of the capital they contributed if the company goes bankrupt. At the same time, these shareholders have residual claims on the assets of the companies in the event of liquidation. Though shareholders will not lose their private property when companies' assets are insufficient to cover up the claims of lenders and creditors, they stand to gain only after the claims of other claimants are met. As shareholders' claims are residuary in nature, it is very important to protect their interests. Various committees on corporate governance across the world and nearer home, and the academic community at large, therefore, begin addressing governance issues by placing the interests of shareholders at the core of analysis.