Supplemental disclosure: Overview, definition, and example
What is supplemental disclosure?
Supplemental disclosure refers to the additional information provided beyond what is required or initially disclosed, typically to clarify, correct, or provide more detail on a particular subject. It is often used in financial reporting, legal agreements, or regulatory filings to ensure transparency and to give stakeholders a more complete understanding of the situation, conditions, or terms. Supplemental disclosures are meant to enhance the information already presented and may be issued periodically or in response to specific queries or changes.
Why is supplemental disclosure important?
Supplemental disclosure is important because it ensures that all relevant information is available to stakeholders, such as investors, regulators, or customers. By providing additional details or clarifications, it helps avoid misunderstandings or incomplete interpretations of the original information. It also helps organizations comply with legal or regulatory requirements and demonstrates a commitment to transparency. For businesses, providing accurate and complete disclosures fosters trust and can prevent legal issues or financial penalties that might arise from incomplete or misleading information.
Understanding supplemental disclosure through an example
For example, a publicly traded company files its quarterly earnings report, but later realizes that some important details about a new acquisition were left out. The company may issue a supplemental disclosure to provide more details about the acquisition, including the financial impact, terms of the deal, and any potential risks. This supplemental disclosure ensures that investors have a complete picture of the company’s financial position and recent activities.
In another example, a company entering into a contract might initially provide a general description of the terms. However, later, it may issue a supplemental disclosure to explain more about specific clauses, such as indemnity provisions, potential liabilities, or restrictions that were not fully explained in the original agreement.
An example of a supplemental disclosure clause
Here’s how a supplemental disclosure clause might appear in a contract:
“The Seller agrees to provide supplemental disclosures as necessary to clarify or update any information related to the representations and warranties made under this Agreement. Such disclosures will be made promptly, and any material changes will be communicated to the Buyer within [specified time frame].”
Conclusion
Supplemental disclosure plays a crucial role in ensuring transparency and providing additional context or information that may not have been included in the original report or agreement. It helps stakeholders fully understand the complete picture, whether it’s in financial reports, legal contracts, or regulatory filings. By offering supplemental disclosures, businesses can maintain trust, avoid miscommunication, and ensure compliance with regulatory or contractual obligations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.