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Question

Explain the full disclosure principle. Why should information be fully disclosed?

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Solution

According to this principle, there should be a reporting of all the significant information relating to the economic affairs of the business and it should be complete and understandable. For example, reasons for low turnover due to natural calamities should be disclosed.

Information should be fully disclosed because

(i) Since one of the objectives of accounting information is to communicate accounting information to various users, it is important to provide complete information to them, so that they can take right decisions at the right time on the basis of the financial statements of the business.

(ii) Disclosure of complete and true information projects a correct picture of the financial position of the business.


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