Full Disclosure Essay

accounting is an information body that identifies, records, and communicates the economic events of an organization to interested users (Kieso, Weygandt, and Warfield, 2007). Information that is relevant and important to users should be admitd unfortunately, some information cannot be quantified through pecuniary data. indisputable data cannot be included in the organizations monetary statements. The full disclosure pattern explains how companies handle situations that cannot be explained in numeral terms but should be disclosed to the investing frequent. This written report go away explain what is the full disclosure principle in accounting and wherefore has disclosure increase substanti whollyy in the last 10 years. This paper will to a fault address why full disclosure is unavoidable and what possible consequences whitethorn occur if companies do not follow these principles.What is all-inclusive Disclosure?The full disclosure principle calls for monetary reporti ng of either fiscal facts significant enough to influence the judgment of an informed ref (Kieso, Weygandt, and Warfield, 2007, p. 1282). For example, certain financial information does not directly influence particular journal accounts. However, these financial events whitethorn influence the future of the participations or may influence how investors view the financial stability of the high society. For example, a high-profile ongoing lawsuit may cause dramatic constraints on the phoners liabilities and assets if the alliance must pay high litigation fees and settlements.This grapheme of information has a huge impact on how stable the company seems. Unfortunately, it will not be stated in the financial statements since the slickness has not been settled. According to the full disclosure principle, the company should disclose this typesetters case of information in the notes of the financial statements. This kind of information influences how investors rate the companys financial stability and strategic future even though the company has not settled the case yet. all-embracing disclosure to a fault curbs fraudulent accounting acts that can be hidden or omitted from financial statements.Why Full Disclosure Increased Substantially in the decision 10 Years?The full disclosure principle has substantially increased within the last 10 years due to several reasons. star of the reasons is due to the wake of off-balance sheet financing made public by the Enron shit (Kieso, Weygandt, andWarfield, 2007). dishonorable accounting acts made famous by the Enron scandal has prompted the industry to reinforce this principle. Consequently, the SEC called for an expanded disclosure in nightspot to ensure that companies are disclosing all necessary information.By disclosing information that may affect users, companies comply with the increased reporting requirements recently made by the accounting profession. It also forces companies to disclose information that has the potential of having huge financial consequences to the business. Moreover, the complexity of the business environment, and the command for timely information has increased the need for full disclosure as well. As a result, the SEC implemented the full disclosure principle more fully to help monitor lizard and control business organizations (Kieso, Weygandt, and Warfield, 2007).Why is Full Disclosure Needed?The Securities transfigure Commission (SEC) and the public permit both called for the need to disclose ideal financial information that states all contractual obligations and liabilities must be reported. In other words, full disclosure is needed to ensure that organizations are disclosing all of the necessary information to help investors, creditors, and the public make better and wiser decisions regarding their companies. Full disclosure is also needed to ensure that companies do not establish fraudulent activities like the activities that were committed within th e Enron organization. Full disclosure also helps investors determine if a company is as stable as the financial statements appear to be.Possible ConsequencesFailing to disclose items in financial statements can have several possible consequences. The Enron scandal describes how company executives can be held conjectural for fraudulent activity. Criminal and civil liabilities may occur if executives fail to disclose financial information that may mislead investors. Another consequence is losing public trust if an organization is caught not disclosing pertinent information. A company may lose high public opinion if shareholders are led to recall that the company was more profitable than what was actually occurring. Moreover, a company may not be able to recover from bad press, litigation costs, and governing fines if caught not fully disclosing financial information.The SarbanesOxley Act reinforces the consequences and punishments of not fully disclosing financial information. The main goal of this act focuses on deterring fraudulent acts and cutting kill on poor reporting practices. CEOs and CFOs are held personally liable for the verity of financial statements a forfeit of the CEOs bonuses or company profits may be withheld if accounting restatements are made as well (Kieso, Weygandt, and Warfield, 2007). Independent auditors must be employed to ensure that completed information is disclosed as well.ConclusionThe full disclosure principle ensures that relevant and useful financial information is reported accurately to the public. Fraudulent accounting activity has called for stricter interpretations of this principle since criminal, civil, and SEC violations may occur if full disclosure is not followed. The Sarbanes Oxley Act highlights the consequences of not fully disclosing information. These strict guidelines show how the government has responded to accounting activities that attempt to hide certain financial activities. method of accounting manage rs must be aware of the heightened need for fully disclosing all types of financial events or information that may affect the investors view of the financial stability of a company.ReferencesWeygandt J., Kieso D., & Kimmel, P. (2007) Financial Accounting and Accounting Standards. Intermediate Accounting (12th edition).Kieso D., Weygandt J., & Warfield T. (2007). Full Disclosure. Intermediate Accounting (12th edition).