Introduction
You would have gone through the article named materiality principle whose principle requirement is that there should be no omission or misstatement in relation to the information in the financial statements that could have potential influence over the decision-making process of the stakeholders. The information may be financial information or alternatively non-financial information. In either case, it is certainly going to hit the process of decision making on the part of the stakeholders.
It is one of the important accounting principles and is the basis of many accounting requirements set out in either of generally accepted accounting principles or alternatively International financial reporting standards. The compliance with this accounting principle would result in the financial statements that have enhanced qualitative characteristics that are understanding, completeness, and comparability. International financial reporting standards have required the management of the organizations to comply and report the disclosures to enable the user to be more informed about the financial operations of the organization.
Example of the Disclosures required by IFRS
Some of the instances that require proper and full disclosures are changing the accounting policy, relationships maintained with the related parties and transactions with the same. Disclosures are not always financial, at times, non-financial disclosures are mandatory as well. For instance, it is quite possible that there are related parties, however, there are no transactions with them over the whole of the reporting period. IFRS still require the disclosure of the same and it would be a non-financial information disclosure. Change in accounting policy may impact financial statements in monetary terms and the disclosure of the same would be a financial disclosure.
Full Disclosure Principle and Notes to the Financial Statements
In the article, components of the financial statements, we developed our know-how in relation to the notes to the financial statements. The full disclosure principle has real-time application for that component of the financial statements. It is important to recognize that not all the disclosures mentioned in the International financial reporting standards and GAAP are usually presented by the management in the financial statements. The rationale behind is practicability. The circumstances used to vary from organization to organization. In the financial statements of the organization, only such notes are prepared as per the full disclosure principle which are material in terms of nature as well as financial impact. This would reduce the quantum of the notes to the financial statements in addition to controlling the cost of presenting such notes which go quite well with the cost-benefit analysis to a significant extent.
Conclusion
Full disclosure principle is the real time application of the materiality principle. The compliance with this accounting principle would result in the financial statements that have enhanced qualitative characteristics that are understanding, completeness, and comparability. International financial reporting standards have required the management of the organizations to comply and report the disclosures to enable the user to be more informed about the financial operations of the organization. Preparing and presenting the disclosures to enable the user to make effective decision making is quite important from the corporate governance point of view as it assists in the strengthening of the controls in the organization which leads to increased profitability and sustainability.
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