Acc 421 - Full Disclosure Paper
Autor: adrianswoman • August 17, 2013 • Term Paper • 821 Words (4 Pages) • 745 Views
Full Disclosure Paper
June 24, 2013
University of Phoenix
Full Disclosure Paper
This paper will explain the need for full disclosure on financial reporting and the possible consequences of improperly disclosing items within the financial reports. The full disclosure principle in accounting and why disclosure has increased substantially in the last 10 years will be addressed as well.
Full disclosure principle requires the reporting of any financial facts that are significant enough to influence an informed reader's judgment and have a material impact on a company's financial position within the company's financial reports (Kieso, Weygandt Warfield, 2012). The SEC requires all companies to comply with the full disclosure principle in their financial reports. Some examples of some of the items that must be disclosed are a company's accounting policies, aspects of contingent liabilities, contingent assets, and legal actions ("Full Disclosure Principle", 2013).
Potential investors, stockholders, creditors and financial institutions use a company's financial reports for judging and comparing a company's financial health. Readers of the financial reports may need the answers to questions like: Can the company afford to pay back the loan they are applying for? Are they making enough profit to pay investors dividends? Can they expand or should they scale back the company's operations? Reading the financial reports a person can find the answers to these questions and many more questions as well. But if the information is not accurate and correct the right decisions cannot be made. The SEC requires full disclosure on all financial reports so that the interested person reading these reports can have confidence the reports are accurate. This came about after the scandals like Enron and Bernard Madoff, and WorldCom stole millions of dollars from investors by misrepresenting their company's financial worth.
Due to the Sec and the SOX Act companies must have their financial reports audited by independent auditors who give an opinion on the report's accuracy. The auditor can give (1) a standard unqualified or clean opinion, (2) a qualified opinion, (3) an adverse opinion or (4) disclaim an opinion (Kieso, Weygandt Warfield, 2012). Companies prefer to have the standard unqualified or clean opinion. This verifies that their records are accurate and fairly represented within the company's financial reports.
Some of the consequences of improperly disclosing items can be as simple as paying fines from the SEC and or other