Companies today have changed the way accounting practices are performed because of the past accounting scandals by Enron, WorldCom, and Tyco. The purpose of this paper is to answer question two in Chapter 24 on the full disclosure principle and how disclosure has increased in the last ten years. Also in this paper, I will explain the need for full disclosure in financial reporting and discuss possible consequences for failing to disclose certain items properly in the financial statements.
Chapter 24 Question Two
What is the full disclosure principle in accounting? Why has disclosure increased substantially in the last ten years? The full disclosure principle in accounting "calls for financial reporting of any financial facts significant enough to influence the judgment of an informed reader" (Kieso, Weygandt, & Warfield, 2013, Chapter 24, pg.
1488, para. 3). The SEC requires companies to disclose the nature of their contractual obligations. Full Disclosure helps users understand how management prepares their financial statements and provide an explanation on financial statement details.
Disclosure has increased because the size of companies' annual reports is growing with the demands for increased transparency. There are several more reasons for the increase in disclosure requirements, such as complexity of the business environment, necessity for timely information, and Accounting as a control and monitoring device (Kieso, Weygandt, & Warfield, 2013).
Complexity of the business environment consists of derivatives, business combinations, and pensions. Necessity for timely information consists of interim data and forecasts. Accounting used as a control and monitoring device.
Disclosures allow parties to find financial information, income, cash flow, and investments that are reflected in the financial statement notes or as additional information. The disclosure principle was created as part...