DISCLOSURE AND 

INTERPRETATIVE MEANS

Learning objectives
1. Students are able to understand and explain mandatory and voluntary disclosures .
2. Students are able to understand and explain who is addressed in the disclosure.
3. Students are able to understand and explain the function and purpose of disclosure.
4. Students are able to understand and explain disclosure methods.

PRELIMINARY
The general purpose of financial reporting is to provide financial information useful to
help make economic decisions. So that it can achieved required a clear disclosure of accounting
data and information other relevant. To whom the financial information is presented, what needs
to be disclosed, the purpose of disclosure and how that information is disclosed is part of
important in financial reporting.

9.1 MANDATORY AND VOLUNTARY DISCLOSURE
Disclosure (disclosure) in the widest sense means delivery ( realese )
information. Disclosure in the narrowest sense, includes things such as discussion and
management analysis, footnotes and supplementary reports. Company disclosures present a
holistic picture of the information provided by the company to the parties external, which
includes financial or non-financial information, quantitative or qualitative, mandatory
disclosure as requested by regulators and accounting standards or that be voluntary given
because of pressure from external parties or policy decisions internal. Healy and Palepu (2001)
state that companies disclose through regulated financial reports including financial reports,
notes to financial reports, management discussion and analysis and other regulatory filings . In
addition to the company conducts voluntary communication, such as management forecasts,
analysis presentations and conference calls, press releases, internet sites and other corporate
reports. Besides, disclosures about the company can also be obtained through information
intermediaries , such as financial analysis, industry experts and financial press .
 When linked to financial statements, disclosure means that financial reports must provide
sufficient information and explanation regarding the results activity of a business unit. Thus, the
information must be complete, clear and reliable describe precisely the influencing economic
events the results of operations of the business unit. The information disclosed must be useful
and not confuse users of financial statements in assisting decision making the economy. How
much information to disclose depends not only on reader's expertise, but also to the required
standard.

The problem of how much information must be disclosed is called the level
disclosure levels . Evans (2003) identifies three levels disclosure, which has implications for
what should be disclosed.
1. Level adequate ( adequate disclosure )
The adequate level is the minimum level that must be met in order for a financial
statement as a whole not misleading for the sake of decision making directed.
2. The rate is reasonable or ethical ( fair or ethical disclosure )
The fair level is the level that must be achieved for all parties to receive treatment or the
same informational service. This means that neither party is missing receive information
so that they are disadvantaged by their position. In other words, there is no preference for
disclosure of information.
3. The full rate ( full disclosure )
The full level demands the full presentation of all relevant information directed decision
making.

The right level of disclosure must be determined because there is too much information
as disadvantageous as too little information. It is therefore necessary criteria or considerations for
determining the upper and lower limits. Upper Limit (kos>benefit) and lower bound (materiality)
in the qualitative characteristics of information for recognition of a post can be used as a
consideration to determine the amount of information. In terms of disclosure, the upper limit (full
rate) is more controversial compared to the lower bound. That is, for policy makers, determining
how much the extent of disclosure must be more problematic than determining information
which one does not need to be disclosed.
 Voluntary disclosure is disclosure made by the company outside of what as required by
accounting standards or regulatory bodies. Signal theory ( signaling theory ) underlies voluntary
disclosure. Management is always trying to disclose private information which, according to his
judgment, is of great interest to investors and shareholders especially when the information is
good news ( good news ). Management is also interested in providing information that can
improve credibility and the success of the company even though the information is not
mandatory.
Some academic research also shows that the bigger the company more and more
voluntary disclosures are being made. This voluntary disclosure is a solution to the problem of
full disclosure. With willingness management in this voluntary disclosure, the level of mandatory
disclosure that can be set can be directed to a reasonable or even adequate level need not be full.
The difference between mandatory disclosure and voluntary disclosure is  based on
understanding, objectives, characteristics, disclosure items and motives are as follows:
Table 9.1
Difference between mandatory disclosure and voluntary disclosure
Mandatory Disclosure Voluntary Disclosure
Definition Disclosure of information in fulfillment of Disclosures made by companies
disclosure requirements from regulators in outside of what is required by
the form of law, professional regulation in accounting standards or regulatory
Standard form and stock exchange listing  bodies.
Rules
Purpose To maximize the needs of user To complete the mandatory
information, ensuring that quality of reporting process that is deemed
information generated through the control inadequate to meet the needs of the
of legal observance and Standard. user.
Charateristic Is the amount of information minimum Is the information that is made to
requirements that must be adhered to by supplement and supplement the
the company. required and voluntary disclosures.
Disclosure All items are required by law, accounting Publish information without any
item standards and capital market regulators. legal requirements, why
companies do it useful both
makers and users information.
 Motive Consequences of legal provisions, capital The consequences of the existence
market regulations, regulatory bodies and of information asymmetry between
accounting standards. two parties, managers who have
better information about the
company compared to investors or
owners. There is an incentive for
managers to do so.
Source: Hassan dan Marston (2010), Adina dan Ion (2008), Suwardjono (2008)

9.2 WHO IS INTO DISCLOSURE

The conceptual framework has established that investors and creditors are parties
intended by financial reporting so that the disclosures are aimed primarily at they. The SEC
demands more disclosures because financial reporting has social and public aspects. Therefore,
the information disclosed is for the sake of the public in general must be protected and served,
and also qualitative information is also on demands are provided, so that disclosure tends to
expand.
The company's financial statements are addressed to shareholders, investors and
creditors. For more details, the FASB (1980) in SFAC No.1 states that reporting finance must
provide useful information for potential investors and creditors and other users in order to make
rational investment decisions, credit and other types of decisions. Apart from the parties above,
disclosure is also given to employees, consumers, government and the general public, but all of
these are seen as a second recipient of annual financial reports and other forms of disclosure. The
focus of disclosure is the lack of investors knowledge of decisions to be taken by other parties
and outside investors. Decisions made by investors and creditors can be clearly identified and
well identified. For investors the desired decision is to buy - sell - retain shares and the lender's
decision is related to granting credit or extending credit to companies. Purpose of financial
reporting to both users it is relatively clear. While the purpose of reporting to employees,
consumers and the general public are difficult to define. So that it is considered that information
which is useful for investors and creditors also useful for other parties .
9.3 FUNCTIONS AND PURPOSE OF DISCLOSURE
According to Suwardjono (2008), in general, the purpose of disclosure is to present
information deemed necessary to achieve financial reporting purposes and for serving various
parties who have different interests, investors and creditors not homogeneous but varies
in sophistication . Because of the market capital is the main means of fulfilling public funds,
disclosure can be required for the purpose of protecting the ( protective ), informative
( informative ), or serve special needs ( differential ).
1. Purpose of Protecting
The goal of protecting is based on the idea that not all users are sophisticated enough
so that naive users need to be protected by disclosing that information they may not
obtain it or may not process the information for capture the economic substance
underlying a financial statement. In other words, disclosure is intended to protect
treatment management that may be unfair and open ( unfair ). With this aim, the level or
volume of disclosure will be high.

2. Informative Goals
Informative goals are based on the idea that the intended audience is clear with a certain
degree of sophistication, thus disclosure is directed to provide information that can help
with the effectiveness of retrieval decision of the user. These goals are usually the basis
of standard setting accounting to determine the level of disclosure.

3. Purpose Special Needs

These objectives are a combination of public protection goals and objectives
informative. What should be disclosed to the public is limited by what is deemed
beneficial for the intended user temporarily for the purpose of supervision, Certain
information must be submitted to the regulatory body under the regulations through
forms requiring detailed disclosure. The above classification of objectives describes the
emphasis or orientation of the regulatory body. Both protective and informative purposes
must be served.

9.4 DISCLOSURE METHODS

 The method of disclosure is concerned with how technically the information is presented
to users in a set of financial statements along with other information which interlock. This
method is usually specified in an accounting standard or other regulations Information may be
presented in financial reporting as, among others, pos financial statements, footnotes (notes to
financial statements), use of technical terms (terminology), explanation in brackets, attachments,
explanation of the auditor in the auditor's report, and management communications in the form
of letters or official inclusion. Disclosure involves the entire reporting process. There is, however
several different methods of disclosing presumed information urgent. The choice of the best
method of disclosure depends in each case on the nature of the information concerned and its
relative importance. The methods commonly used in disclosing information can be classified
as follows :
1. Form and structure of a formal report
2. Terminology and detailed presentation
3. Information inserts
4. Footnotes
5. Additional overview and schedules
6. Comments on the auditor's report
7. Statement of the president director or chairman of the board of commissioners

In Indonesia, disclosure in both financial statements is mandatory or voluntary has been

regulated in PSAK No. 01. Apart from that, the government passed a decree throughThe
Chairman of BAPEPAM No: Kep-38 / PM / 1996 also regulates disclosure of information in the
annual financial reports of companies in Indonesia. Disclosure information regulated by the
Government or professional institutions (IAI) is disclosures that must be obeyed by companies
that have been public. Government goals is regulating the disclosure of information is to protect
the interests of investors and imbalance of information between management and investors due
to interests management.