What is meant by differential disclosure? Identify the three differential disclosure proposals discussed in the text.

Question

What will be an ideal response?

Answer 1

ANSWER:
Differential disclosure as it is in effect today refers to the fact that the 10-K and 10-Q reports filed annually and quarterly by management with SEC are basically aimed toward professional financial analysts. They are more detailed and technical than the annual report going to shareholders. Three additional differential disclosure proposals include:

(1) Small firms versus larger firms: The FASB specifically considers implications of disclosures for smaller firms with the express purpose of requiring disclose only where they are relevant and cost effective.

(2) Summary annual reports (SAR): These reports are condensed financial statements that omit or boil down much of the detail contained in the body of the traditional audited financial statement and are a new development in disclosures. Management discussion and analysis, on the other hand, is generally more expansive. The SAR is intended to replace the traditional corporate annual report and to be more understandable. The wide use of SARs would be a revolutionary development in financial reporting.

(3) SEC attempts to streamline annual reports: The SEC has proposed that financial statements in annual reports be streamlined by reducing the number of footnotes. This proposal was abandoned shortly after it was introduced because investors thought they were being deprived of important information.