August 3, 2015
The full disclosure principle was created to protect users of financial statements by requiring publicly held organizations to disclose pertinent information regarding transactions and details surrounding business operations. Full disclosure is increasing because of the need for more information in a timely manner. The necessity for full disclosure in financial statements brings consequences punishable by laws and fines and pushes organizations to act in honest and ethical manners when compiling their financial statements to the public.
The Full Disclosure Principle in Accounting
The full disclosure principle in accounting was created to protect investors who may be misled by businesses withholding crucial financial information. Without the full disclosure principle important negative financial information on company standings would likely be withheld from investors. The full disclosure principle requires that all circumstances relevant to financial statement users be disclosed. This means that all transactions must be available to the readers of a company’s financial statements. The important of full disclosure is to protect the people involved in an organization by requiring companies to provide all necessary information so people may be able to make informed decisions (Kieso, Weygandt & Warfield, 2013). Required disclosures are found in company financial statements, schedules and notes to statements, management discussion and analysis for publicly traded companies, and quarterly reports (Averkamp, 2015). Disclosures can include accounting policies on revenue recognition, depreciation, how inventory is accounted for, leases, and stock options.
Increase in Full Disclosure
The increase in full disclosure is due to multiple factors relating to the increase in information necessity. As business operations become increasingly complex, the difficulty in summarizing circumstantial...