Consider the principles, assumptions, and constraints of Generally Accepted Accounting
Principles (GAAP). Define the full disclosure principle and explain why it is important to users
of financial statements.
Solution
The full disclosure principle states that any and all information that affects the full understanding
of a company\'s financial statements must be include with the financial statements The
interpretation of this principle is highly judgmental, since the amount of information that can be
provided is potentially massive. To reduce the amount of disclosure, it is customary to only
disclose information about events that are likely to have a material impact on the entity\'s
financial position or financial results. . Some items may not affect the ledger accounts directly.
These would be included in the form of accompanying notes, such as the presence of a dispute
with a government entity over a tax position, or the outcome of an existing lawsuit.
Full disclosure also means that you should always report existing accounting policies, as well as
any changes to those policies (such as changing an asset valuation method) from the policies
stated in the financials for a prior period.
Several examples of full disclosure are:
· The nature of a relationship with a related party with which the business has significant
transaction volume.
· A description of any asset retirement obligations.
· The nature and justification of a change in accounting principle .
· The nature of a non-monetary transaction.
· The facts and circumstances causing goodwill impairment
Reasons it is importanat tousers of financial statements
Owner, Investors, Employees, Fianancial institutions, Mangers are the common users of
financial statements
Owners and managers require financial statements to make important business decisions that
affect its continued operations, Employees also need these reports, in the case of labor unions or
for individuals in discussing their compensation, promotion and rankings.
Prospective investors make use of financial statements to assess the viability of investing in a
business. Financial analyses are often used by investors and are prepared by professionals
(financial analysts), thus providing them with the basis for making investment decisions.
Financial institutions (banks and other lending companies) use them to decide whether to grant a
company with fresh working capital or for long term loan or debentures to finance expansion and
other significant expenditures..
Historical philosophical, theoretical, and legal foundations of special and i...
Consider the principles, assumptions, and constraints of Generally A.pdf
1. Consider the principles, assumptions, and constraints of Generally Accepted Accounting
Principles (GAAP). Define the full disclosure principle and explain why it is important to users
of financial statements.
Solution
The full disclosure principle states that any and all information that affects the full understanding
of a company's financial statements must be include with the financial statements The
interpretation of this principle is highly judgmental, since the amount of information that can be
provided is potentially massive. To reduce the amount of disclosure, it is customary to only
disclose information about events that are likely to have a material impact on the entity's
financial position or financial results. . Some items may not affect the ledger accounts directly.
These would be included in the form of accompanying notes, such as the presence of a dispute
with a government entity over a tax position, or the outcome of an existing lawsuit.
Full disclosure also means that you should always report existing accounting policies, as well as
any changes to those policies (such as changing an asset valuation method) from the policies
stated in the financials for a prior period.
Several examples of full disclosure are:
· The nature of a relationship with a related party with which the business has significant
transaction volume.
· A description of any asset retirement obligations.
· The nature and justification of a change in accounting principle .
· The nature of a non-monetary transaction.
· The facts and circumstances causing goodwill impairment
Reasons it is importanat tousers of financial statements
Owner, Investors, Employees, Fianancial institutions, Mangers are the common users of
financial statements
Owners and managers require financial statements to make important business decisions that
affect its continued operations, Employees also need these reports, in the case of labor unions or
for individuals in discussing their compensation, promotion and rankings.
Prospective investors make use of financial statements to assess the viability of investing in a
business. Financial analyses are often used by investors and are prepared by professionals
(financial analysts), thus providing them with the basis for making investment decisions.
Financial institutions (banks and other lending companies) use them to decide whether to grant a
company with fresh working capital or for long term loan or debentures to finance expansion and
