An Overview of Full Disclosure Principle
According to the full disclosure principle, a company should include all the information which will influence the readers’ understanding about its financial statements in those statements. However, the interpretation of the full disclosure principle is very judgmental. This is because the information that a company may provide can be immense. Thus, usually, business owners would only disclose the information relevant to the events which will probably bring a material impact (Also see What is Audit Materiality?) on the company’s financial position to cut down the information it discloses.
If you are still new to the world of business and have no idea about materiality, you should engage an accounting firm in Johor Bahru and let the experts help you. Disclosing information which is material to your company helps you to determine its financial status more accurately, and it would help you in decision making.
You may disclose some items that you are unable to quantify accurately. For example, you cannot determine precisely the dispute your company has with a government body about a tax position. Also, based on the full disclosure principle, you should report the accounting policies that your company is using (Also see Financial Reporting Standard 8: Accounting Policies, Changes in Accounting Estimates and Errors). Besides, if you have made some changes to the policies that you have mentioned in the documents of the previous accounting period, you should report them as well.
Some examples of disclosures you should make according to the full disclosure principle include the amount of your company’s encumbered assets (Also see What Are Assets and How To Classify Them?) and the material losses that you experience as a result of the lower of cost or market (LCM) rule. Also, you may include the nature of the transactions which are not related to money, your company’s relationship with a related party that has a high transaction amount with it, as well as the justification and nature of an alteration you made in the accounting principle.
You may disclose the information mentioned above in various places in your company’s financial statements. For example, you can put it in the line items in your balance sheet, profit and loss statement or the accompanying documents that list the disclosures.
One thing that you should know is usually, the financial statements that the companies generate internally would not adhere to the full disclosure principle because the management tends to prefer the financial statements which include the most basic and necessary information.