Question

Discuss why full disclosure is important in accounting/financial reporting.

Answer 1

Solution. When an organization decides to enter into business in today's competitive economic market, it need to operate under set regulations of book keeping and ethics, in order to sustain and meet its objective of profit maximization along with social impact in society.

Full disclosure principle encompasses an organization to maintain and record its transactions of activities along with submission of statements detailing such records. It encircles information which are relevant for the organization to the outsider while performing audit or any study, in order to determine organization's true financial position and reliability.

Importance of full disclosure in accounting/financial reporting are enlisted below:

a)It facilitates in building strong relationship between the organization and outside individual/party by following transparent publications of report under this principle.

b)It facilitates in comparison of organization's performance with that of other's, operating in business market by disclosing all required information of its activities of costs incurred and revenues earned. It also facilitates in decision making by disclosing information, in order to avoid unfavorable situations in future.