Full Disclosure Paper

Full Disclosure Paper

Ashley Hart

ACC/421

Jennifer Cooper

July 13, 2015

Full Disclosure

        Full Disclosures are a vital part of the fiscal reporting year. This paper will define what the full disclosure principle in accounting is and why they have increased in the last 10 years. The need for these disclosures will also be discussed so that the reason behind them is understood and lastly the possible consequences of failing to properly disclose certain items in financial statements will also be discussed.

What is the full disclosure principle in accounting?

        The full disclosure principle in accounting is a principle that is an important because it has the company report significant financial facts that can influence the judgement of the financial readers without having so much overload on information. According to our readings the full disclosure principle calls for financial reporting of any financial facts significant enough to influence the judgement of an informed reader (Kieso, Weygandt, & Warfield, 2013). This just means that businesses need to disclose explanations that concern their contractual obligations. This needs to be done once the financial statement is created because when a business has irregular accounts in the financial reports they have to provide why that account is there and what that amount is for in a note.

        This principle allows companies to really explain their excess losses and gains in those notes that are attached to their financial statements. This helps creditors, stockholders and investors to see what is going on in that statement with unanswered questions and opinions that are unbiased. These explanations that are being disclosed for excess gains and losses helps the company to avoid certain things like audits helps them keep their investors.

Why has disclosure increased substantially in the last 10 years?

        Disclosures have increased substantially in the last 10 years because some corporations in society took advantage and provided misleading information to keep their earnings up as well as their stock prices. Fraud like Enron, WorldCom, etc. have been the reason that these disclosures have become so important so that others like these corporations cannot do the same thing. Also, because a survey showed that the size of businesses annual reports are getting bigger which can cause an increase in transparency. Other reasons being the complexity of the business environment because this makes it more difficult of putting economic events into the summarized reports so the companies have to extensively use notes to explain the reasoning behind certain transactions, etc. Necessity for timely information is another reason because there is an increase in demanding information that is current predictive (Kieso, Weygandt, & Warfield, 2013). Lastly, accounting as a control and monitoring device because of the Enron case they have hired selected auditors and accountants to help in monitoring these concerns so that it doesn’t happen again.