Question

"According to the Full Disclosure Principle, what items require full disclosure?" any unusual transactions involving stockholder's equity any transactions that take place after month end any inconsistent transactions on the balance sheet any information important enough to influence an informed user

Answer 1

The full disclosure principle means informing the users of the financial statements about each and every relevant and material information they are required to know. It is a concept that requires the management of the company to report all the relevant information of the company in the financial statements or as footnotes so as to make easy for the users of financial statement to make their decision on the true picture of the company.

This relevant information can be related to the business operations of the company, or the future events that are going to happen, any contingent events that can affect the decision of the users of financial statements, or things related to third-party contract etc.

Full disclosure should be about anything which is relevant and material, which can affect the future transactions and the decision of the users. For example, any suit filed on the company on whose decision the company profit or loss depends shall me mentioned in the statement as a footnote about the suit filed, or the net sales or total turnover, or long term obligations, operations that can be discontinued etc.

Any unusual transaction involving shareholder's equity, if it can affect the financials of the company or on the basis of which if disclosed the users can base his decision than it would be relevant to disclose such information.

Any month-end transactions if they are of material nature then they are required to be disclosed otherwise not, and any unusual transaction that can affect the entity and its users adversely or effectively such transaction is required to be disclosed if it is of so effective that it can influence the decision of the users of financial statements.