What is the full disclosure principle in accounting? Why has disclosure increased substantially in the last 10 years? The full disclosure principle gives financial facts in financial reporting to help give the reader a clear judgment of the report. This is a difficult task because full disclosure within a company can be costly. The benefits of this principle are not easy to assess. The full disclosure is an information overload. The purpose of disclosure is to prepare current and future investors of the financial risk that the business may face. A business should look into everything that is available to get current and future performance of the company. If an event is unlikely to occur the company does not have to disclose this information. If the event is likely to happen but will not impact the financial status it does not have to be disclosed. If the business cannot determine if the event will occur the company must disclose the underlying facts because there is a possibility for occurrence. This is to keep the financial reports from misleading users. The requirement for disclosures has increased because businesses are growing more complex in the business environment. Information is needed in a timelier manner and because accounting is used as a control and monitoring device the requirements have increased. The expansion of disclosures about their specific agreements has been required by the SEC. Companies have committed fraudulent actions by withholding information or falsifying the reports which is against the full disclosure principle. There are companies, such as Enron and World Com, which played a part in fraudulent acts which influenced the SEC to enforce the full disclosure principle. The reporting requirements are so detailed that companies would have to hire in more employees specifically for full disclosure portion of the company to make sure policy is followed. Complexity of the business environment, necessity of timely information, and accounting...
References: Kieso, D.W., Weygandt, J.J., & Warfield, T.D. (2010) Intermediate accounting (13th ed.) Hoboken, NJ: John Wiley & Sons.
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