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Chapter 24: 2Q (page 1445)

What is the full disclosure principle in accounting? Why has disclosure increased substantially in the last 10 years?

Short Answer

Expert verified

The full disclosure relates to the imperative data, which is expanding due to the complexity of the business environment.

Step by step solution

01

Meaning of Full Disclosure Principle

Full disclosure can be term as an accounting principle that compels the management of an organization to disclose all relevant and material financial information, whether monetary or non-monetary, to creditors, investors, and stockholders.

02

Explaining the full disclosure principle in accounting and explaining why it has grown significantly over the past 10 years.

The full disclosure principle in accounting calls for the description of any financial truth in the financial statements that is sufficient to influence the judgment of an educated user.

Disclosure has expanded since the complexity of the business environment, the need for convenient data, and the desire for more information on the enterprise for control and observation purposes.

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Most popular questions from this chapter

Morlan Corporation is preparing its December 31, 2017, financial statements. Two events that occurred between December 31, 2017, and March 10, 2018, when the statements were issued, are described below.

  1. A liability, estimated at \(160,000 at December 31, 2017, was settled on February 26, 2018, at \)170,000.
  2. A flood loss of $80,000 occurred on March 1, 2018.

What effect do these subsequent events have on 2017 net income?

What are the major types of subsequent events? Indicate how each of the following “subsequent events” would be reported.

  1. Collection of a note written off in a prior period.
  2. Issuance of a large preference share offering.
  3. Acquisition of a company in a different industry.
  4. Destruction of a major plant in a flood.
  5. Death of the company’s chief executive officer (CEO).
  6. Additional wage costs are associated with the settlement of a four-week strike.
  7. Settlement of an income tax case at considerably more tax than anticipated at year-end.
  8. Change in the product mix from consumer goods to industrial goods.

A close friend of yours, who is a history major and who has not had any college courses or any experience in business, is receiving the financial statements from companies in which he has minor investments (acquired for him by his now-deceased father). He asks you what he needs to know to interpret and evaluate the financial statement data that he is receiving. What would you tell him?

What are diversified companies? What accounting problems are related to diversified companies?

“The significance of financial statement data is not in the amount alone.” Discuss the meaning of this statement.
See all solutions

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