Full Disclosure Principle
Full disclosure principle is relevant to materiality concept. It requires that all material information has to be disclosed in the financial statements either on the face of the financial statements or in the notes to the financial statements.
- Accounting policies need to be disclosed because they help understand the basis of accounting.
- Details of contingent liabilities, contingent assets, legal proceedings, etc. are also relevant to the decision making of users and hence need to be disclosed.
- Significant events occurring after the date of the financial statements but before the issue of financial statements (i.e. events after the balance sheet date) need to be disclosed.
- Details of property, plant and equipment cannot be presented on the face of the balance sheet, but a detailed schedule outlining movement in cost and accumulated depreciation should be presented in the notes.
- Tax rate is expected to change in near future. This information needs to be disclosed.
- The draft for a new legislation is presented in the legislative of the country in which the company operates. If passed, the law would subject the company to significant cleanup costs. The company has to disclose the information in the notes.
- The company sold one of its subsidiaries to the spouse of one of its directors. The information is material and needs disclosure.
Written by Obaidullah Jan, ACA, CFA