What is the full disclosure principle?
For a business,
the 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.
What are the accounting principles, assumptions, and concepts?
The basic or fundamental principles in accounting are the
cost
principle, full disclosure principle,
matching principle,
revenue
recognition principle,
economic entity assumption, monetary unit
assumption, time period assumption, going concern assumption,
materiality, and conservatism. The last two are sometimes referred to as
constraints. Rather than distinguishing between a principle or an
assumption, I prefer to simply say that these ten items are the
basic principles or the
underlying guidelines
of accounting. (My reason is that accounting principles also include
the
statements of financial accounting standards and the interpretations
issued by the Financial Accounting Standards Board and its
predecessors, as well as industry practices.)
There are also “qualities” of accounting information such as
reliability, relevance, consistency, comparability, and cost/benefit.
These are discussed in the
Statement of Financial Accounting Concepts
No. 2, which can be found on the Financial Accounting Standards Board’s
website
www.FASB.org/st.
What is principles of accounting?
Three meanings come to mind when you ask about
principles of accounting…
1.
Principles of Accounting was often the title of the
introductory course in accounting. It was also common for the textbook
used in the course to be entitled
Principles of Accounting.
2. Principles of accounting can also refer to the basic or
fundamental accounting principles: cost, matching, full disclosure,
materiality, going concern, economic entity, and so on. In this context,
principles of accounting refers to the broad underlying concepts which
guide accountants when preparing financial statements.
3. Principles of accounting can also mean
generally accepted
accounting principles (GAAP). When used in this context, principles of
accounting will include both the underlying basic accounting principles
and
the official accounting pronouncements issued by the
Financial
Accounting Standards Board (FASB) and its predecessor organizations. The
official pronouncements are detailed rules or standards for specific
topics.
