Question

IS THE DISCLOSURE WORTH THE COST? Filing with the SEC requires a very significant amount of time and effort on the registrant's part. Companies frequently resist attempts by the SEC to increase the levels of disclosure. Usually, they argue that additional information will not necessarily be useful to a great majority of investors. Regardless of the issue being debated, critics claim that the cost of the extra data far outweighs any benefits that might be derived from this disclosure. Such contentions are not necessarily made just to avoid disclosing information. This cost analysis has continued for most of the past four decades. One survey from the late 1970s estimated the cost of SEC disclosures to be more than $400 million in 1975 alone. The table reports an estimated $213,500,000 for the fully variable costs of 10-K, 10-Q, and 8-K disclosures in 1975. To this should be added the separate estimate (not shown) of $191,900,000 for disclosure related to new issues in 1975, for a total estimate of about $400,000,000 for SEC disclosure costs in 1975. These estimates are biased downward because they do not include various fixed costs.* Such costs are either passed along to the consumer in the form of higher prices or serve to retard the growth of the reporting company. Additional SEC requirements continue to concern issuers, many of which conclude that "the costs of mandatory SEC disclosures outweigh the benefits" and accept delisting from the various exchanges, rather than incurring the costs of such disclosure + SEC revenues, which constitute real out-of-pocket costs to issuers, exceeded $3 billion in 2012. This represents a 15-fold increase in the past 40 years.

Answer 1

The disclosures required in the financials, by the SEC are required because of the legislative requirement. Each company which is listed at the Stock Exchange is required to file the 10Q and 10 K as their quarterly and annually financial reports. The disclosures made in these financial statments are very useful for the investors to get the correct information about the company as well as about the correct financial position of the company.

However, at the same point of time, the companies which are required to made the financial disclosures in their financials have to bear huge cost to make such disclosures in their financials. The variable cost to make such disclosures in the financials is quite high and the companies tries to resist their disclosure requirements from time to time. Such high cost are alternatively, passed on to the customers of the company or will affect the operating margin of the company. As a result of this, most of the companies don't want to continue thier listing with the SEC.

Various surveys have been conducted in this regard from time to time and most of them found that, their is no need to make such high disclosures in the financials of the company as because most of the disclosures are of no use to the investor and also their is no fraud in the company.

Hence, to conclude that the disclosure are required by SEC to ensure the transparency to the investors but at the same point of time, it should be kept in mind regarding the cost that has to be bear by the company in making such disclosures, but still the major disclosures are required to be made to ensure true and fair disclosure.