Full_Disclosure_Paper

Full Disclosure Paper Full Disclosure Paper Without honest reporting, the financial market will not function properly. Users of financial statements need to have an understanding of aspects included in financial reporting. “The full disclosure principle calls for financial reporting of any financial facts significant enough to influence the judgment of an informed reader,” (Kieso, Weygandt, & Warfield, 2007, p. 1282). Any information that would affect the reader’s understanding of the financial reports should be included. Some of what is included is based on judgment, so the normal protocol is to include information about events that have a material impact on the financial health of the company. In this paper the subjects to address are the needs for full disclosure and the changes that have been made to full disclosure in the past 10 years. In this paper another subject to address is the consequences that may occur when failing to meet full disclosure guidelines. Need for Full Disclosure As a result of companies like Enron, WorldCom, and Tyco, the disclosure rules have become more extensive. Investors need to be protected and corporations need to be held responsible for financial reporting. Corporate scandals and fraudulent or skewed financial reporting created the need for full disclosure. The Sarbanes-Oxley act governs the accounting acts of companies and requires full disclosure in financial reporting. Changes in Last 10 Years The business environment is growing more complex, there is a greater need for timely information, and accounting has become a control and monitoring device, which has made the requirements for disclosure to increase in the past 10 years, (Kieso, Weygandt, & Warfield, 2007). As a result, reports have gotten longer and more time consuming to create. Notes to financial statements have become more extensive with the information included. The information needs to be current and predict future performance with financial forecasts. In the past, company’s review of its disclosure controls and procedures must be included within 90 days of the period date of the report. Now this information must be included when the date of the period for the report is covered, (Full Disclosure, 2004). Different sections and certifications have also been changed to include this information as exhibits to the reports. Companies should also include an assessment report from the independent accountants. Internal control over these documents is important to save time and money when preparing these financial reports. A company must disclose if an audit committee financial expert is on staff and the name of this person must also be disclosed. If this expert does not exist, the company must give an explanation why. The company code of ethics is required to be disclosed. This information is included as an exhibit to the financial reports or by posting it on the company website. A copy can be obtained by request. Amendments and waivers to the code of ethics must also be disclosed publicly, (Full Disclosure, 2004). Consequences for Failing to Properly Disclose Items A company that does not comply with the full disclosure can result in the loss of exchange listing, huge fines, and imprisonment. “If the wrong certification was submitted willfully, the fine can increase up to $5 million and the prison term can be increased up to twenty years,” (Sarbanes-Oxley Essential Information, 2006, para. 8). The laws are created as a deterrent for companies to knowingly and willfully create misleading and fraudulent information. “Fraudulent financial reporting is defined as intentional or reckless conduct, whether act or omission, that results in materially misleading financial statements,” (Kieso, Weygandt, & Warfield, 2007, p. 1312). Deliberately distorting financial records, not applying accounting principles appropriately, and not including important events are ways to not properly prepare financial reports. Conclusion Full disclosure is necessary to monitor companies from misrepresenting the financial health of the company. Companies like Enron, WorldCom, and Tyco cause corporate scandals and showed the need for governing accounting practices. Over the past 10 years, the need to regulations became greater. These changes have caused financial reporting to become more extensive with additional reports added to create full disclosure of the company’s activities. Failure to comply with these standards and regulations can result in loss of exchange listing, fines, and even imprisonment. Full disclosure is needed for external users to obtain a complete picture of the financial activities and events with future predictions of the company’s financial health. This information provides a complete analysis for investment, loans, and other business activity decisions. References Kieso, D. E., Weygandt, J. J., & Warfield, T. D., (2007). Intermediate Accounting (12th ed). Hoboken, NJ: John Wiley & Sons. Full Disclosure. (2004 Spring). Trust the Leaders, 7. Retrieved from http://www.sgrlaw.com/resources/trust_the_leaders/leaders_issues/ttl7/904/ SOX-Online. (2006). Sarbanes-Oxley Essential Information. Retrieved from http://www.sox- online.com/basics.html