Evaluating disclosure requirements for financial reporting is one of this week’s objectives. There is widespread agreement that disclosure requirements are increasing. Additionally, there is general industry consensus that the cost of disclosure can be expensive, whereas the benefits are typically difficult to assess.
Respond to the following in a minimum of 175 words:
· Explain the benefits that the accounting profession gained after adopting a full disclosure principle.
· Discuss some of the reasons why disclosure requirements are increasing.
· Discuss possible industry reactions to firms that fail to adopt high-quality reporting policies.
Reply to answers below. Be constructive and professional.
Explain the benefits that the accounting profession gained after adopting a full disclosure principle-The full disclosure principle states that all relevant and necessary information for the understanding of the company’s financial statements must be included in public company filings. This principle is crucial to ensuring that there is no lack of information between the company’s management, current shareholders, debtors, or other third parties vested. The principle helps foster transparency in financial markets and limits the opportunities for potentially fraudulent activities.
Discuss some of the reasons why disclosure requirements are increasing-The perceived benefit from this or any accounting standard is increasing, ideally to improve the resource allocation process to quantify its benefit. Even in the absence of international misuse, reliance on professional judgment might result in different interpretations for similar transactions, raising concerns about comparability. Also, detailed rules help auditors withstand pressure from clients who want a more favorable accounting treatment and help companies ensure that they are complying with GAAP and avoid litigation or SEC inquiry.
Discuss possible industry reactions to firms that fail to adopt high-quality reporting policies-One justification for these practices is that investors and creditors who lose money on their investments are less likely to sue the company if bad news has been exaggerated and good news underestimate. Another justification is that conservative accounting can trigger debt covenants that allow creditors to protect themselves from bad management. Despite the lack of support for conservatism in the conceptual framework, the important consideration in accounting practice and the application of some accounting standards.
As in a restaurant corporation looking for a plot of land the key is location, location location, same within the financial industry the key is disclose, disclose, disclose.
The benefits that the accounting profession gained after adopting a full-disclosure principle, reasons why disclosure requirements are increasing and industry reactions of firms to adopt a high-quality reporting policies. The full disclosure principle is the accounting principle that requires an entity to disclose all necessary information in its financial statements which maybe used by decision makers within the organization or even retail investors. The benefits of full disclosure principle states that the information should not exceed the cost of providing the information, such as supplemental information that is disclosed on the face of the financial statement. Ideally to keep all necessary parties informed and transparent with the information to avoid material nonpublic inside information. These disclosures, from my experience, are usually in the footnotes of a financial statement. These statements identify significant financial and management issues that may affect the company’s overall performance, such as accounting methods used, extraordinary items, pending litigation and management philosophy.
Reasons for the increase requirements come from individuals such as Bernie Madoff, he is probably the most recent and well known that I can think of at least. People are trying to get something without working for it and scamming people to do it. Industry reactions of firms to adopt a high-quality reporting policies will limited or nearly have no possibility of dealing with government regulations or laws such as the ITSFEA of 1988. Failure can lead to treble damages to the industry insider and/or the company.