Full Disclosure Paper
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Full Disclosure
The general practice of providing information that is of sufficient importance to influence the judgment and decisions of an informed user is often referred to as the full disclosure principle (Kieso, Weygandt, and Warfield, 2007). Full disclosure requires that financial statements and their notes present all information that is relevant to the users understanding of the companys financial condition. In other words, the statements should offer any explanation that is needed to keep them from being misleading. Explanatory notes are considered an integral part of the financial statements. For instance, a change from one accounting procedure to another should be reported. In general, the form of the financial statements can affect their usefulness in making certain decisions. For example take the section of liabilities on a companys financial statements. If a company has large amounts of notes payable, an explanatory note may disclose the balances, maturities, interest rates, and other features of the debts. Any special credit arrangements, such as issues of commercial paper and lines of credit, should also be disclosed. This type of disclosure is helpful in assessing whether a company has additional borrowing power.
Other examples of disclosures required by the Financial Accounting Standards Board (FASB) are the accounting procedures used in preparing statements, important terms of the companys debt, commitments and contingencies, and important events taking place after the date of the statements. However, there is a point at which the statements become muddled that the notes impede rather help understand. Beyond the required disclosures, the application of the full-disclosure convention is based on the judgment of management and of the accountants who prepare the financial statements.
In recent years, the principle of full disclosure has also been influenced by users of accounting information. To protect investors and creditors, independent auditors, the stock exchanges, and the SEC have made more demands for disclosure by publicly held companies. Full disclosure has increased over the number years due to the complexity of the business environment, necessity for timely information and the need for accounting as a control and monitoring device. The business environment has changed in areas such as leasing, business combinations, and pensions, financing arrangements, revenue recognition and deferred taxes (2007). Users need information quickly and the way to get the information to the users is by disclosing pertinent information. In addition with all the recent scandals the need for more control processes and monitoring of companys accounting policies have become more evident and vital in the financial statements that are prepared and distributed.
There are two types of events or transactions that occur after