This article discusses the role of voluntary disclosure and transparency in Financial Reporting. It identifies various characteristics and discusses transparency and benefits of voluntary disclosure. To enhance competitiveness, firms view disclosure as an opportunity rather than a burden. The higher the level of disclosure the lower is the information risk premium. Low risk premium provides higher valuation. Firms gain from building reputation for transparent reporting, as it eventually results in higher management credibility, a higher Price/Earning (P/E) multiple, increased liquidity and a lower cost of capital. This article also highlights risks and costs associated with voluntary disclosure.

The main reason for the recent emphasis on voluntary disclosure and enhanced transparency is that they are the twin cornerstones to protect shareholders' rights. Complete disclosure practices along with transparency in Financial Reporting can build a climate of trust and also boost the confidence of the investor community. Voluntary disclosure positively influences performance of firms and also protects interests of shareholders. On the other hand, opacity in disclosure practices can contribute to suspicious and unethical behavior leading to poor valuation of firm.

There is a huge gap between the level and qualities of information that corporates are prepared to give and the information the investing community thinks that it should get. The investing community requires access to timely, useful, reliable and complete information to judge custodian of management and make better investment decision. Voluntary disclosure provides valuable insight into internal structure and management policies of a firm. Firms provide voluntary disclosure such as release of earnings forecast by management, investor and analyst meetings, conference calls, press releases, investor presentations, investor relation disclosure on company websites, and required statutory filings.

The Accounting World Magazine, Financial Reporting, Management Policies, Corporate Governance, Informational Discrepancies, Management Credibility, Market Capitalization, Credit Rating, Market Liquidity, Firm Management, Financial Markets, Capital Investment Decisions, Management Credibility, Financial Accounting Standards Board, FASB.