Full Disclosure

Essay by Sherron December 2008

download word file, 4 pages 0.0

Full Disclosure"Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users" (Kieso, Weygandt, and Warfield, 2007). Information that is relevant and important to users should be disclosed; unfortunately, some information cannot be quantified through financial data. Certain data cannot be included in the organization's financial statements. The full disclosure principle explains how companies handle situations that cannot be explained in numerical terms but should be disclosed to the investing public. This paper will explain what is the full disclosure principle in accounting and why has disclosure increased substantially in the last 10 years. This paper will also address why full disclosure is needed and what possible consequences may occur if companies do not follow these principles.

What is Full Disclosure?"The full disclosure principle calls for financial reporting of any financial facts significant enough to influence the judgment of an informed reader" (Kieso, Weygandt, and Warfield, 2007, p.

1282). For example, certain financial information does not directly influence specific journal accounts. However, these financial events may influence the future of the company's or may influence how investors view the financial stability of the company. For example, a high-profile ongoing lawsuit may cause dramatic constraints on the company's liabilities and assets if the company must pay high litigation fees and settlements. This type of information has a huge impact on how stable the company seems. Unfortunately, it will not be stated in the financial statements since the case has not been settled. According to the full disclosure principle, the company should disclose this type of information in the notes of the financial statements. This kind of information influences how investors rate the company's financial stability and strategic future even though the company has not settled the case yet. Full disclosure also curbs fraudulent...