The general practice of providing information that is of sufficient importance to influence the judgment and decisions of an informed user is often referred to as the full disclosure principle (Kieso, Weygandt, and Warfield, 2007). Full disclosure requires that financial statements and their notes present all information that is relevant to the users' understanding of the company's financial condition. In other words, the statements should offer any explanation that is needed to keep them from being misleading. Explanatory notes are considered an integral part of the financial statements. For instance, a change from one accounting procedure to another should be reported. In general, the form of the financial statements can affect their usefulness in making certain decisions. For example take the section of liabilities on a company's financial statements. If a company has large amounts of notes payable, an explanatory note may disclose the balances, maturities, interest rates, and other features of the debts. Any special credit arrangements, such as issues of commercial paper and lines of credit, should also be disclosed. This type of disclosure is helpful in assessing whether a company has additional borrowing power. Other examples of disclosures required by the Financial Accounting Standards Board (FASB) are the accounting procedures used in preparing statements, important terms of the company's debt, commitments and contingencies, and important events taking place after the date of the statements. However, there is a point at which the statements become muddled that the notes impede rather help understand. Beyond the required disclosures, the application of the full-disclosure convention is based on the judgment of management and of the accountants who prepare the financial statements. In recent years, the principle of full disclosure has also been influenced by users of accounting information. To protect investors and...
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