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What is the full disclosure principle in Accounting?

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posted Jul 3 by Naveen Kumar

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he full disclosure principle requires a company to provide the necessary information so that people who are accustomed to reading financial information can make informed decisions concerning the company.

The required disclosures can be found in a number of places including the following:

  • The company's financial statements including any supplementary schedules and notes (or footnotes).
  • Management's Discussion and Analysis that is included in a publicly-traded corporation's annual report to the U.S. Securities and Exchange Commission.
  • Quarterly earnings reports, press releases and other communications.
  • The first note or footnote in a company's financial statements will disclose the significant accounting policies such as how and when revenues are recognized, how property is depreciated, how inventory and income taxes are accounted for, and more.

Other disclosures in the notes to the financial statements include the effects of foreign currencies, contingent liabilities, leases, related-party transactions, stock options, and much more.

Judgement is used in deciding the amount of information that is disclosed. For example, in 1980 large U.S. corporations were required to report as supplementary information the effects of inflation and changing prices on its inventory and property (and cost of goods sold and depreciation expense). After several years, the disclosure became optional since the cost of providing the information exceeded the benefits.

answer Jul 4 by Ramesh Gowda
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