This paper will answer the question two from the end of chapter 24. The question has two parts. The first part asks, “What is the full disclosure principle in accounting?” (Kieso, Weygant, & Warfield, 2004). The second part of the question asks, “Why has disclosure increased substantially in the last 10 years?” (Kieso, et al., 2004). This paper will also include an explanation of the need for full disclosure in financial reporting as well as identify possible consequences of failing to properly disclose certain items in financial statements.
The full disclosure principle in accounting states, “…any and all information that affects the full understanding of a company's financial statements must be include with the financial statements” (Bookkeeper List, n.d.). Some information such as pending lawsuits, losses due to fire or flood and mergers will need to be disclosed in the notes that accompany the financial statements, even though sometimes they may not affect the ledger accounts. However, full disclosure does mean more than the financial statements and the notes that accompany the statements. The financial statements themselves disclose some information such as earnings per share, revenues etc. The notes provide more information such as the method of depreciation used. The annual report provides even more information. Specifically, the annual report contains Management’s Discussion and Analysis (MD&A). The MD&A includes information about an organization’s liquidity, capital resources as the results of operations. (Kieso, et al., 2004) Other types of disclosure include management’s forecasts, certifications regarding internal controls, news releases and other reports filed with government agencies. (Kieso, et al., 2004)
Disclosure has increased substantially from what was required years ago mainly because of the Sarbanes-Oxley Act of 2002 (SOX). This act “…came as a result of the large corporate financial scandals involving Enron, WorldCom,... [continues]
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