Question

why do we have to understand the full disclosure principles and describe how it is implemented? explain in detail

Answer 1

Bitmap Bitmap It is so necessary to understand the Disclosure Principles in IFRS as it improves the understanding of financial statements. Main concerns about disclosures principles in financial statements are

a. If enough relevent information is not being provided in all circumstances then this can lead to inappropriate investing or lending decisions to investors b. if Irrelevant information is being disclosed – which will lead to obscure relevant information, reduce understandability and add unnecessary costs to the preparation of financial statements c. Relevant information that is provided is not always effectively communicated – this can reduce understandability of financial statements

In applying judgement about which information to disclose in financial statements and determining the most effective way to organise and communicate the information to be the main causes of the disclosure problem. These difficulties are often behavioral. Some entities, auditors and regulators seem to approach the finanical statements primarly as compliance documents, rather than as a tool to facilitate communication with users. The disclosure requirements in IFRS are sometimes applied mechanically, and some entities tend to use the requirements as a checklist without applying judgement to determine what is relevant to users.

The disclosure principles identifies seven principles to help entities communicate information effectively in the financial statements. This points should be taken care while implementing the principle

1) Entity-specific

2 ) Clear and simple

3) Organised to highlightimportant matters

4 ) Linked to relatedinformation

5 ) Free from unnecessaryduplication

6 ) Comparable

7) In an appropriate format

Companies use the full disclosure principle as a guide to understand what financial and non-financial information should be included in their financial statements. The full disclosure principle states that disclosed information should make a difference as well as be understandable to the financial statement users.

This information is either disclosed in the footnotes of the financial statements or the supplemental information. The financial statement footnotes usually explain the information presented in the body of the financial statements. If an item on the balance sheet is unclear, the notes can be used to explain it. For instance explanations of lawsuits and contingencies might be mentioned in the notes as well as accounting methods used for inventory.