Unintended Consequences of Increased Disclosure
Requirements
Overthepastthreedecades,wehaveseenanincreasingfocus
on information disclosure in accounting statements. While
thistrendhasitsrootsintheUnitedStates,ithasspreadto
othermarkets aswell.Although theobjective ofincreased
disclosure is noble—to provide investors with more
informationaboutthecompanies thattheyinvestin—there
have been unintended side consequences that are not so
favorable.First,theproliferationofaccountingrulesandthe
level of detail required in reporting have made financial
statements much longer and more complex. For example,
considertheliability sideof thebalancesheetofa typical
U.S. firm. Thirty years ago, itwould haveshown current
liabilities(accountspayable, suppliercredit, and short-term
debt);long-termdebt(bankloansandcorporatebonds);and
shareholders’equity(paid-incapitaland retainedearnings).
Todaywewouldsee,inadditiontothesethreeitems,ahost
ofotherliabilities,includingunfundedpensionliabilitiesand
healthcarebenefitsandprovisionsforfuturelegalliabilities.
Second, theincreasing level ofdetail bothin the financial
statements themselves and the footnotes that follow often
obscures important information about the firm. In other
words, financial statementssometimes become data dumps
that are difficult to navigate for investors. To provide an
illustrationofhowmuchaccountingruleshaveaddedtothe
heftoffinancialstatements,welookedatthenumberofpages
inthe10-KsfiledbyProcter&GambleandKimberly-Clark
withtheSecuritiesandExchangeCommission(SEC)starting
in 1990 andgoingthrough2004,showninFigure16.1.While
some of this increase can be traced to the increasing