Define: Disclosure

the action of making new or secret information known. The making known of a fact that had previously been hidden; a revelation. For example, in many US states, you must disclose major physical defects in a house you are selling, such as a leaky roof or potential flooding problem.

The Convention of Disclosure means that all material facts must be disclosed in the financial statements. For example, in the case of sundry debtors, not only the total amount of sundry debtors should be disclosed, but also the amount of good and secured debtors, the amount of good, the amount of unsecured debtors, and the amount of doubtful debts should be stated. Full disclosure does not mean disclosure of each and every item of information. It only means the disclosure of information that is of significance to owners, investors & creditors.

Disclosure is the release of relevant information. Disclosure requirements play a major role in the Generally Accepted Accounting Principles (GAAP), which dictate whether and where disclosure must be made on the financial statements of business events. In investing, disclosure is commonly used in the term “full disclosure,” the requirement to release all information pertaining to a security or business transaction. A series of laws, beginning with the Securities Act of 1933 and continuing through the passage of Sarbanes-Oxley, has expanded full disclosure requirements for publicly traded companies, mutual funds, securities brokers, and others to a growing list of activities, including initial public offerings, proxy solicitations, and tender offers. The goal of full disclosure is to ensure transparency so all investors who participate in markets operate on a level playing field. Company management and boards of directors have strong incentives to seek full disclosure in public offerings. First, full disclosure of any potential problems tends to limit their legal liability should problems arise. Second, investors tend to discount the value of securities whose businesses they can’t understand or who they believe are hiding material information.

This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 11th April, 2024.