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What is the full disclosure principle in accounting?

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Quick Answer

The full disclosure principle states that financial records should include all of the information necessary for readers to understand those records. This is a largely subjective principle, but full disclosure doesn't mean that records should include irrelevant information.

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What is the full disclosure principle in accounting?
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Full Answer

In accounting, the full disclosure principle is a concept that allows those reading a company's financial records to understand what they're reading. The information disclosed according to this principle can appear in a variety of formats, including footnotes, appendices and schedules within financial statements.

This information can also be included outside of financial statements, such as in annual reports to government bodies, press releases, shareholder meetings and public interoffice communications. This means that, though the supplemental and explanatory information should be available, it doesn't have to be written alongside financial records.

In addition to providing context for understanding financial records, the full disclosure principle concerns corporate transparency and ethics. However, this doesn't mean that over-reporting of information is necessary; rather, the full disclosure principle is meant to increase efficiency. Reporting things like changes in accounting procedures or the effects of inflation aren't strictly necessary according to the conventions of the full disclosure principle. Seattle Central University summarizes that the inclusion of a full disclosure is a way for smart investors to make informed decisions about a company's success.

Rules regarding full disclosure may change over time, but the concept behind the principle has largely stayed the same.

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