Full Disclosure
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- Date Submitted: 10/14/2010 05:16 AM
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Full Disclosure Paper
This paper will go over the full disclosure principle and why this disclosure has increased substantially
in the last 10 years. The need for full disclosure in financial accounting will be addressed and examples will be given. A few consequences and problems that may arise form failing to properly disclose certain items in financial statements are given in this paper to give the reader a clearer view on why full disclosure is necessary.
The full disclosure principle calls for financial reporting of any financial facts, significant enough to influence the judgment of an informed reader. This disclosure requires companies to give expanded information in their reporting. The full disclosure principal is very beneficial in helping cut down on fraud and also helps the investor make an informed decision. The full disclosure principal may add to the work load of accountants, but in most instances the benefits outweigh the cost. Take the Enron scandal for example and their off-balance sheet accounting frauds. The financial statements can be an easy target for fraudulent activity. This is due to information being removed or falsely reported by company employees or auditors. Full disclosure in financial reporting is needed to prevent this type of behavior and give the public an accurate picture of the company.
The need for full disclosure requirements in financial reporting comes from the following:
Complexity of the Business Environment. The increasing complexity of business operations magnifies the difficulty of distilling economic events into summarized reports. Such areas as derivatives, leasing, business combinations, pensions, financing arrangements, revenue recognition, and deferred taxes are complex. As a result, companies extensively use notes to the financial statements to explain these transactions and their future effects.
Necessity for Timely Information. Today, more than ever before, users are demanding information that is...
This paper will go over the full disclosure principle and why this disclosure has increased substantially
in the last 10 years. The need for full disclosure in financial accounting will be addressed and examples will be given. A few consequences and problems that may arise form failing to properly disclose certain items in financial statements are given in this paper to give the reader a clearer view on why full disclosure is necessary.
The full disclosure principle calls for financial reporting of any financial facts, significant enough to influence the judgment of an informed reader. This disclosure requires companies to give expanded information in their reporting. The full disclosure principal is very beneficial in helping cut down on fraud and also helps the investor make an informed decision. The full disclosure principal may add to the work load of accountants, but in most instances the benefits outweigh the cost. Take the Enron scandal for example and their off-balance sheet accounting frauds. The financial statements can be an easy target for fraudulent activity. This is due to information being removed or falsely reported by company employees or auditors. Full disclosure in financial reporting is needed to prevent this type of behavior and give the public an accurate picture of the company.
The need for full disclosure requirements in financial reporting comes from the following:
Complexity of the Business Environment. The increasing complexity of business operations magnifies the difficulty of distilling economic events into summarized reports. Such areas as derivatives, leasing, business combinations, pensions, financing arrangements, revenue recognition, and deferred taxes are complex. As a result, companies extensively use notes to the financial statements to explain these transactions and their future effects.
Necessity for Timely Information. Today, more than ever before, users are demanding information that is...