Corporate financial disclosures and the importance of readability

Abstract

Purpose This paper draws on prior studies on the readability of corporate financial disclosures to discuss why readability should be a concern for firms. Guidance and recommendations are offered to help firms improve their financial disclosures. Design/methodology/approach The authors base their analysis on the management and accounting literature on readability. Findings This paper presents the main causes and consequences of complexity in corporate disclosures and identifies four disclosure writing styles: obfuscation, informativeness, deception and avoidance. This paper suggests that firms concerned about the readability of their communications use a balanced strategy and proposes some practical actions for its implementation. Originality/value This paper makes several contributions by offering insights into questions that should be raised by top management and the board of directors, including: Why care about readability? What are the causes and consequences of low readability? What strategies can we adopt and how should we implement them?

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