Since there have been many different scandals since 2001, the government decided that it would be best for companies to fully disclose any material on the financial statements that could alter the way an investor perceives a company. If a company does not fully disclose some pertinent information on their financial statements, then it may lead an investor to think that the company is more financially stable than what it really is. The first thing a company needs to do is realize what full disclosure means.
What does full disclosure mean to a company? Full disclosure means that any information that can alter the way an investor thinks about the company has to be fully disclosed in notes anywhere in the financial statement. Full disclosure does not always have to pertain to the financial side of the company. The information could be as small as a change in management to something as large as a lawsuit. These changes could have an effect on the way an investor perceives the financial stability of the company. Next thing a company has to figure out is what information is relevant and needs to be put on the financial statement.
There are many different types of information that the FASB feels is relevant to a company’s financial statements that has to be fully disclosed. One type of information is the loss of things like land, equipment, and plants. The reason why the loss of any of these important features needs to be fully disclosed is because the loss will impair the company financially. If the company does not disclose this loss, anyone that reads the company’s financial statement will be led into thinking that the lost item is still there. Another type of information that needs to be fully disclosed is the acquisition of another company or equipment. The acquisition of equipment or another company means that the company spent revenue instead of paying dividends to stockholders. If a company does not disclose this...