Full Disclosure Principle

FULL
DISCLOSURE
PRINCIPLE

ACC
421

Kimberly
Dixon
12/10/12


What is the full disclosure principle in accounting, why has disclosures increased substantially in the last 10 years, and regulations that are being increased and put into place. These are the three areas of the full disclosure principle that will be discussed in this paper. First, what is the full disclosure principle in accounting? The full disclosure principle is the principle that states that a company must include in its financial statements all information that would affect an informed readers understanding of the financial statements. Items that fall under this principles requirement include any event that will have a material impact on the company’s financial position or financial results. Also items that cannot be quantified at the present time can be disclosed. Examples of this include outcomes of existing lawsuits and disputes with the government over the companies tax position. Another required item to this principle is the disclosure of all existing accounting policies used within the company, along with any changes the company makes to these policies. The purpose of the full disclosure principle in accounting is to make sure that all information imperative to the understanding of the different financial aspects that can not be quantified at the present time are represented and known to the informed readers of the financial statements being presented. Second, why has the full disclosure principle increased substantially in the last 10 years? There are three main reasons for this substantial increase over the past 10 years. The first reason is because there are more complex business environments. Examples of things that make business more complex includes leasing options, deferred tax options, and financing arrangements. These are just a few of the reasons business environments have become much more complex. The second reason for the increase in the use of the full disclosure principle is because the necessity for readers to have the information that cannot be recorded in the financial statements has increased. The need for informed readers to have all of the information has increased because the desire to make the best choices for the company in today’s economy has increased, and the full disclosure principle allows for this imperative information to be presented to the readers. The third and final reason for the increase in the full disclosure principle is because more and more the financial statements for a company are being used to control and monitory a company. The government is using the items covered in the full disclosure principle to monitor companies more closely to help avoid future chances of cases like Enron. Third, these are not only the three main reasons the full disclosure principle has increased so substantially over the past 10 years but they are also the reasons that the requirements for disclosing have increased. The more disclosures companies have the greater the need for requirements on these disclosures become because company’s disclosures can become so extensive that all other aspects reported in the financial statements get lost. Also, the point of the full disclosure principle is to help informed readers to better understand the financial statements

and if the disclosures do not have requirements placed on them then readers will need something to help them to better understand the disclosures. The full disclosure principle is a great tool for companies to use to help ensure that their informed readers have all of the key information needed to make the best‐informed decisions. However, it is also imperative for regulations on the disclosures to be put in place to help ensure that the disclosures do not become convoluted and so extensive that the reader needs help to understand the disclosures. This happening would be a contradiction to the entire reason for the full disclosure principle to begin with. The full disclosure principle can have a great and helpful impact on a company if used correctly and with caution.