APEC Policy Dialogue on Financial Disclosure-Policy Conclusions
In February 2004, the APEC Finance Ministers' process held a Policy Dialogue on Financial Disclosure in Kuala Lumpur, Malaysia. The Policy Dialogue was co-chaired by Chile (the Ministry of Finance) and New Zealand (the Reserve Bank of New Zealand) and hosted by Bank Negara Malaysia. Its purpose was to provide a forum for exchanging views on the importance of high quality financial disclosure in the corporate and financial sectors and the means by which such disclosure can be promoted.
This article is a reproduction of the Policy Conclusions paper to be issued under the APEC Finance Ministers' process, summarising the main policy conclusions to emerge from the Policy Dialogue.
The views expressed in Policy Conclusions paper represent a consensual set of conclusions agreed by participants in the Policy Dialogue on Financial Disclosure. The paper does not necessarily represent the views of APEC finance ministers or governments, or those of the Reserve Bank of New Zealand.
The paper has the following structure:
* Section 2 summarises the reasons why high quality financial disclosure in the corporate and financial sectors of the economy is so important.
* Section 3 outlines the foundations for effective financial disclosure in the corporate and financial sectors. These are elaborated on in the remaining sections of the paper.
* Section 4 discusses the role of accounting standards and practices in underpinning effective financial disclosure.
* Section 5 discusses the role played by auditing standards and practices.
* Section 6 discusses the role played by corporate governance in promoting sound disclosure practices.
* Section 7 notes the importance of market-based incentives for high quality financial disclosure.
* Section 8 discusses the means by which investors, financial analysts, depositors and the news media can be encouraged to make more use of financial disclosures.
* Section 9 highlights some specific disclosure issues relevant to the financial sector of the economy.
2 Importance of financial disclosure
High quality financial disclosure is essential to the health of the corporate and financial sectors of a modern economy. Disclosure performs a number of important functions. Among them, it:
* Encourages sound corporate governance and risk management. Disclosure strengthens the incentives for corporate entities and financial institutions to establish and maintain sound corporate governance and risk management practices. It provides a mechanism by which the directors and senior management team are held to account for the sound stewardship of the company, and the means by which shareholders and creditors, and other stakeholders, can scrutinise the performance of the directors and senior management team.
* Reduces information asymmetry. Disclosure reduces the information asymmetry between the managers of a corporate entity and the investors and creditors of that entity, and thereby assists investors and creditors better to assess whether managers are acting in the interests of the company (and thereby in the interests of investors and creditors).
* Facilitates supervision and reduces monitoring costs. In countries with constrained resources for financial sector supervision, public disclosure by financial institutions facilitates market-based supervision of financial institutions and shares the cost of monitoring.
* Facilitates sound investment decisions and resource allocation. Disclosure helps to encourage better investment decisions by investors and creditors, enabling them to assess the risk/return trade-offs of particular investment opportunities and to identify risk-adjusted rates of return better. In the process, disclosure facilitates improved resource allocation across the economy, and thereby improves the potential growth rate of the economy. …