Sunday, August 17, 2008

Full Disclosure Accounting Principle

The Full Disclosure Accounting principle is very important to external users of accounting information. It is required that information pertinent to investors and lenders be disclosed in financial statements or attached in notes to financial states.

The Full Disclosure Accounting Principle is the reason that footnotes are attached to annual company reports.

Example of Full Disclosure Accounting Principle:

If a company is involved in legal litigation it is necessary that investors and lenders be informed of this information. When preparing annual financial statements the result of the lawsuit is still unknown to the company but can have significant impact on the company's financials.

Therefore, the full disclosure principle requires that the lawsuit be mentioned in notes accompanying the financial statements.

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