Acc 421 - Full Disclosure Paper

Full Disclosure Paper

Erica Rassmann

ACC/421

November 9, 2015

Jennifer Cooper

Full Disclosure Paper

This paper will explain what a full disclosure in financial accounting is. There will also be other items discussed such as why over the past 10 years has the full disclosure increased substantially, explain the need for the full disclosure in financial accounting and also some of the possible consequences of failing to properly disclose certain items in a companies financial statements. After reading this paper you will  able to better understand why it is so  for companies to  disclose information in financial accounting.

The full disclosure principal in accounting states that you should include in an entity's financial statements all information   would affect a readers understanding  those statements. Disclosure increased substantially on the last 10 years for the main factors: complexity of the business environment, necessity for timely information and accounting as a control monitoring device. Complexity  the business environment magnifies the difficulty of distilling economic events into summarized reports. Companies use notes  the financial statements  explain the translations and future effects such as derivatives, leasing, business combinations, pensions, financing agreement, revenue recognition and deferred taxes. Necessity for timely information because users are demanding information that  current and predictive. More complete interim data  asked  wanted  users. The SEC recommends published financial forecasts, long avoided  even greater by management. Lastly  is accounting as a control and monitoring device which the government  sought public disclosure ofsuch phenomena as management compensation, off balance sheet financing agreement, and related party transactions. The SEC has selected accountants  auditors as the agents to assist in controlling and monitoring these concerns.

 The need for full disclosure  financial accounting to protect investors by creating a transparent marketplace. It would be attentively easy for companies to mislead investors who often  fee resources to fully investigate financial data without  transparency. This disclosure requires companies to identify certain accounting data records  kept, and any policy changes  may affect  outcome of this data. If a company chooses to change an accounting principle, it is essential that the change is communicated to readers of the financial statement.  Those who read a  companies financial report may  want the answers to some questions like: can the company afford to pay back the loan they are asking for, are they making enough profit to pay investors dividends, are they able to expand our should they decrease the companies operations? The reports can help those in need of the answers to these questions, but if the information needed is not disclosed by the company then they will not know. The SEC required   disclose this information  some famous scandals such as Enron and Bernard Madoff and WorldCom stole millions of dollars from their investors by misrepresenting their companies financial worth. Because of SEC and SOX Act companies must have their financial reports audited by independent auditors who give an opinion on the reports accuracy. The auditors can give a standard unqualified or clean opinion, a qualified opinion, an adverse opinion or disclaim an opinion.