Full disclosure plays an important role in the preparation of a company or business financial statements. Full disclosure benefits the user, company, or business. This principle tries to prevent companies or businesses from provided their user with false or over stated financial information about the company or business financial position. This essay will discuss, full disclosure principle as it relates to accounting. Another area in which will be focus on is why disclosure has increased substantially in the last 10 years. Let discuss the full disclosure principle.
Full disclosure principle tries to provide an examination of why a company or business would need to use notes in the preparation of their financial statements. Note provide background information on item within the financial statements. They provided additional insight on certain items listed in the financial statement, which can included the company or business accounting policies, number of share issue and outstanding, type of inventory method the company is using, which can be either FILO, FIFO.
The Full disclosure principle also provided information on the requirement for different type of business. Under the full disclosure principle businesses that have many different type of product lines are in some situation require to segment the product information. This provided user of the financial statement the opportunity to understand how this would affect the company profit, future growth of the company and product lines and any risk related to carrying and selling certain product.
The principle also provided background information on the different type problem that can arise from preparing interim financial statement. According to Kieso, Weygandt, and Warfield, (2007), stated “The full disclosure principle calls for financial reporting of any financial facts significant
enough to influence the judgment of an informed reader” (p. 1282). The Full disclosure principle also tries to prevent company or business from providing their user with false or overstated financial information on the company or business. I will discuss why disclosure has increased substantially in the last 10 years.
They have been many scandals involving accounting fraud in the last 10 years. In 2001 there was a major scandal involving Enron Company and their accounting Arthur Anderson. Once the scandal was investigated, it was reveal that the accounting Arthur Anderson play major role in the providing misleading and false financial information. According to Raver (2006), stated that “Arthur Anderson was responsible for conspiracy with Enron to create false earnings reports, thereby hiding huge amounts of debt and artificially inflating stock prices beyond the point of no return (Cable News Network, 2002)” (p. 1). The last 10 years have many different accounting scandals such as the one involving Halliburton. According to Paturis, (2002), stated “Improperly booked $100 million in annual construction cost overruns before customers agreed to pay for them” (p. 1). The author wants to reflect back on the most recent scandal that causes the crash of Wall Street and the elapse of the economic. In this situation, deal with the creation of derivatives and the repackaging and selling home mortgage. The Country is still trying to rises above this situation and ensures the economic is back on track. As a result of these scandal the rules and regulation seems to fall short and do not protect the user of the financial information. These are some of the major reason why there has been an increase in the full disclosure. Company and business are force to ensure they are following the rules and regulation of the full disclosed principle. The full disclosure principle has increase the information in which company and business must disclosure within their financial statement. This has also created the need for additional rules and regulation to try to prevent a repeat of the past accounting scandal.
The important of ensuring that company or business is using the full disclosure principle will have a major bearing on the financial information that is being disclosure. The essay discusses the full disclosure principle.
Understanding what is included in the full disclosure principle. At the same time understanding why there has been such a major increased in the dull disclosure principle over the last 10 years.
.Kieso, D.E., Weygandt, J.J. and Warfield, T.D., (2006). Intermediate Financial Accounting (12th ed.). New York: Wiley
Raver, E., (2006). The Enron Scandal: the Crime, Scandal, Tragedy, and Controversy of the Century. Retrieved January 9, 2010 from
Patsuris, P., (2002), The Corporate Scandal Sheet. Forbes. Retrieved January 9, 2010 from http://www.forbes.com/2002/07/25/accountingtracker.html