The Important in Accounting
Full Disclosure Paper
Aniushka Caraballo ReimĂłndez
ACC 421
January 21, 2013
Mary Derx-Robinson
Full Disclosure Paper
The purpose of this paper is to discuss the Full Disclosure Principle and way important in accounting. It will also be discussed why has disclosure increased substantially in the last 10 years. Another important point to discuss will be the consequences of failing to properly disclose certain items in financial statements, as well as why this principal is needs in financial reporting.
Full Disclosure Principal
The Full Disclosure Principal is a guideline that states that all pertinent and important information had to be disclosed, according to Kieso, Weygandt, & Warfield (2010) “the full disclosure principle calls for financial reporting of any financial facts significant enough to influence the judgment of an informed reader”. During the last years disclosure has increased out of the necessity for timely information, as well as the desire for more information. Another factor that has contributed to the necessity to have full disclosure has to do with the several accounting scandals that have been seen in the last few years, for example Enron and Lehman Brothers, this last one fail to disclose Repo 105 transactions to investors (Sharp, 2010). As a response “the SEC required companies to provide expanded disclosures about their contractual obligations” (Kieso, Weygandt, & Warfield, 2010, p. 1314). Also “Disclosure requirements have increased because of (1) the growing complexity of the business environment, (2) the necessity for timely information, and (3) the use of accounting as a control and monitoring device (Kieso, Weygandt, & Warfield, 2010, p. 1348).
There are many different user of financial records that require that the reports provide them will the most accurate and complete information. For that reason, full disclosure is very important, as the reports will include relevant details about different transactions, which can include legal matters, changes in business operations, among others. Another reason that makes full disclosure a necessity, it is because, according to Kieso, Weygandt, & Warfield (2010), it works as a control