Full Disclosure Principle

Topics: Enron, U.S. Securities and Exchange Commission, Financial statements Pages: 3 (836 words) Published: September 19, 2011
Full Disclosure Principle
When the full disclosure principle is mentioned some questions may immediately come to mind. Such as, what is the full disclosure principle in accounting? Why is there a need for the full disclosure principle? Why has disclosure increased substantially in the last 10 years? What are some consequences of improper disclosure? The full disclosure principle and these questions are the main focus of this paper. Through the course reading we will break down the full disclosure principle and take on one question at a time. Let’s begin with the first question. What is the Full Disclosure Principle?

The full disclosure principle in accounting is the practice of reporting financial facts significant enough to influence the judgment of an informed user of the financial statements. Information that falls under the full disclosure principle can be found in the main part of the financial statements, the notes to financial statements, or in the supplemental information section. According to former SEC Commissioner, Cynthia Glassman (2006) financial accounting standards and disclosure rules are in place because the SEC wants “companies to present their business and financial condition based on current knowledge and expectations for the future.” The full disclosure principle allows investors to make educated investment decisions based upon accurate and timely information presented in financial statements. The full disclosure principle ensures that all relevant information be included in those statements. After analyzing companies financial statements potential investors should be able to determine whether or not to invest in that company and also at what price they should invest. Why is there a need for the Full Disclosure Principle?

The SEC is focused on deterring accounting fraud and the full disclosure principle is an integral part of that fight. Ultimately the full disclosure principle is a vital part in nourishing investor confidence, making...

References: Glassman, C.A. (2006). Speech by SEC Commissioner: "Complexity in financial reporting and
disclosure regulation" remarks before the 25th Annual USC Leventhal School of
Accounting SEC and financial reporting institute conference. Retrieved from http://www.sec.gov/news/speech/2006/spch060806cag.htm
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