Need for Full Disclosure in Financial Reporting The principle of full disclosure distinguishes the quality and characteristics of information integrated in financial reports and reflects a series of judgment trade-offs. Full disclosure requires that the financial statements of the company should be planned and prepared perfectly and should contain sufficient information to provide useful information for shareholders, investors, and other concerned parties. With the help of this assignment help report, investors and lenders of the company determine the worth and credit of company in related marketplace.
The full disclosure principle is based on accounting principles. So, the primary requirement for full disclosure is the financial statements of companies that contain all pertinent information to justify the nature and business of the firm effectively. The other needs for full disclosure is that the financial statement of company has to be exposed all information either in the notes or on the face of financial statements. On the other hand, full disclosure also requires the relevant information as like details of assets, liabilities, legal proceedings and other related information that can help the decision makers for making significant decisions related to profitable investment. Due to changes in global business environment and economic misbalance, the legislation related to business are changed by the responsible authorities to protect the people and businesses from financial loss. Hence, full disclosure requires the draft related to new legislation of territory in which the company is operating and it should be added on the financial statements notes. In the case of any change in company structure or if the company sells its some parts or subsidiary to provide a right direction to management for making profits then this type of information is also required in financial reporting.
Failure of Properly Disclose Financial Statements: There is numerous consequence of failure to fully disclose items related to the balance sheet of its wide impact on related parties. Companies face failing consequences at that time, when they fail in the disclosure of needed information through their financial statement as like supplemental balance sheet. The balance sheet of company generally includes accounting policies, contractual situations, far values and contingencies. Each has its own consequence if not disclosed through financial statements. For example, company’s accounting policies take account of information related to the inventory and its evaluations and which process is used for depreciation figuring. Hence, any variation in inventory evaluation of changes in types of depreciation will change the outcomes of balance sheet.
It could mislead the investors and stakeholders that may affect future financial position of the firm. On the other hand, contingencies show loss in tax operation, pending litigation and issues related to business environment that give unsure result. Hence, any failure in disclosing contingencies could present the misstatement. For example, if an organization is filed sue against an organization, and due to a fault, the organization lost the case then it would make a new liability for the firm. If management does not disclose lawsuit then the information supplied by companies’ balance sheet would not be reliable. At the same time, the outcomes of financial statements also depend on the results of balance sheet so; variation in it could make respective changes in financial statements of the company. Due to this, the decision makers could not know the exact worth of company in market. Some situations, when the records of company lost or destroyed due to mismanagement, the assumption related to future cash flow would be less accurate by that the taken business decisions would be less effective.
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