Full Disclosure Paper
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Full Disclosure Paper
In this paper will be discussed questions from chapter 24. It will include an explanation of the need for full disclosure in financial reporting and identifying possible consequences of failing to properly disclose certain items in financial statement. The full disclosure principle is a necessary principle to acknowledge in financial reporting. First, a meaning of the full disclosure principle in terms of accounting will be explained. After that, will be discussed the reason why disclosure increased substantially in the last 10 years can help one understand how important disclosure is. This will help to understand why full disclosure is a necessary principle in financial reporting. Lastly, a review of possible cost of failing to properly disclose certain items in financial statements will help in understanding full disclosures importance.
The full disclosure principle is financial reporting of any financial facts and significant enough to influence the judgment of an informed reader. The full disclosure principle requires information in financial statements, for which omitting such information may be misleading. The full disclosure principle in accounting states that future events which could occur or may occur within a company, and will have a material economic impact on the financial situation of a business, should be disclosed to apparent and possible readers of the businesses statements.
Disclosure Increase
An increase in disclosure in the last 10 years may have much to do with the fraud associated with a few companies. One such company is Enron. Many recognize Enron as a company that misled many individuals by omitting losses from its financial statements. Nonetheless, the Securities and Exchange Commission (SEC) now requires companies to provide expanded disclosures because of companies such as Enron. However, the Financial Accounting Standards Board (FASB) may be significantly responsible for the substantial increase in disclosures in the last 10 years for the below reasons. The FASB issued the following standards in the last 10 years, which increased disclosures substantially:
Complexity of the Business Environment
Businesses continue to become more and more complex in the way they do business. Therefore, companies use notes to the financial statements to assist with the complexity.
Necessity for Timely Information
Many individuals demand correct information the first time. Therefore, these individuals want to see more complete interim data to ensure the data is accurate.
Accounting as a Control and Monitoring Device
This is in regard to the SECs above involvement, for which the SEC is helping to ensure businesses are disclosing all required information, ultimately, comforting