Full Disclosure

Full Disclosure

Full disclosure is a very necessary part of any corporate financial reporting, whether it be for the owners of a privately held company or for the stockholders and possible investors of a public one. The accounting behavior of some companies in the recent past has led to a much stricter, more regulated atmosphere for financial accounting. The companies that found some creative and later discovered, illegal methods for reporting the financial status of the company have caused the SEC and FASB to tighten existing guidelines and create many new ones.

What is Full Disclosure

Full disclosure, what does this term mean? The Merriam-Webster dictionary defines full as; 1. containing as much or as many as is possible or normal, 2 a: complete especially in detail, number, or duration, 3 a: being at the highest or greatest degree. And the same dictionary disclosure as; 1 : the act or an instanced of disclosing (disclose – to make known or public). Using these two definitions, full disclosure means making as much as is possible known. In the accounting field, full disclosure means letting anyone who wants to know about a company’s financial fitness, know as much as is possible about the financial state of the company. To add to that definition the information must be understandable by the peoples who are interested in knowing it. “The full disclosure principle calls for financial reporting of any financial facts significant enough to influence the judgment of an informed reader.” (Kieso, et el)

Why Full Disclosure

The growing complexity of business operations has led to more difficulty in financial reporting. This fact, coupled with the need of greater disclosure due to the illegal acts of companies like Enron and WorldCom, have led to a growing need for full disclosure and more guidelines for reporting financial data. Because financial data can be reported in different ways, notes to the financial statements are necessary to make the process known to the interested parties, particularly for comparative purposes. “Notes are the means of amplifying or explaining the items presented in the main body of the statements.” (Kieso et el)

APB Opinion No. 22, “Disclosure of Accounting Policies,” recommended that companies should present as an integral part of the financial statements a statement identifying the accounting policies adopted and followed by the reporting entity. Companies should present the disclosure as the first note or in a separate Summary of Significant Accounting Policies section preceding the notes to the financial statements. (Kieso, et el)

Another reason for the necessity of full disclosure is due to the desire for information more quickly, for information that is timely. Investors want more information faster. They want accurate, current, and predictive information. Basically, they want it and they want it now. This puts quite a strain on the accounting staff and procedures of any company. The use of notes is a way for the accounting staff to better explain the transactions and their future effects. This adds to the constraints of time and the new demands of the SEC and FASB. But is necessary to show that the accounting practices of the company are sound and above board.

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