Financial accounting standards only require disclosure of business information by industry segment. This means that managers are easily able to bury their failures in big blocks of business, making it impossible to understand the dynamics of the business. What an investor needs is not GAAP compliant accounts, it is useful data. As Buffett says, "What needs to be reported is data - whether GAAP, non-GAAP or extra-GAAP - that helps financially literate readers answer three key questions: (1) Approximately how much is this company worth? (2) What is the likelihood that it can meet its future obligations? And (3) How good a job are its managers doing, given the hand they have been dealt?"

Buffett's own reports for Berkshire Hathaway are a model of how a report should be written, concise, giving all the information his shareholders would need to assess each part of Berkshire's business as a separate part. They meet GAAP of course, but go well beyond the minimum standard of disclosure, providing shareholders with every piece of information that an owner would like to know. Buffett admires CEOs who respect their shareholders in the same manner.

Most annual reports are a sham. They gloss over mistakes or fail to mention them, express over optimistic views about the future and are really nothing more than a sales piece for a stock. When managers are able to get away with such reporting, it may favour the managers in the short term, in allowing them to justify their salaries and enormous bonuses, in the long term this favours no one.

In Berkshire's reports Buffett is very open about his company's performance, along with accurate reports on his successes, he freely admits to his mistakes as well. For example in the 1989 Berkshire Hathaway Annual Report, he included "Mistakes of the First Twenty-Five Years (A Condensed Version)." In 1991 this became "Mistake du Jour", which included not only mistakes but also opportunities lost because he failed to act on them.

Now a cynic might point out that Buffett can easily afford this sort of indulgence, because he owns such a large proportion of Berkshire stock that it is almost inconceivable that he could ever be fired. Nonetheless, this doesn't detract from the importance Buffett places on the belief that candor benefits the manager as well as the shareholder. "The CEO who misleads others in public, may eventually mislead himself in private."