Lesson 26 Flashcards
What is the full disclosure principle?
It calls for financial reporting of any financial facts significant enough to influence the judgement of an informed reader.
What are some reasons for an increase in disclosure requirements?
- Complexity of the business environment.
- Necessity for timely information
- Accounting as a control and monitoring device.
Why do companies use notes at the bottom of financial statements?
Notes are the means of amplifying or explaining the items presented in the main body of the statements.
What are accounting policies?
They are the specific accounting principles and methods a company currently uses and considers most appropriate to present fairly its financial statements.
What are some basic note disclosures?
- Summary of significant accounting policies
- related party transactions
- liability disclosures
- capital structure
- errors and irregularities
- illegal acts
What is Management’s Discussion and Analysis (MD&A)?
- It is a required narrative for publicly held firms
- It includes a discussion about operations, liquidity, and capital resources.
- Management can provide forward looking information in the MD&A.
What is a reason for the increase in disclosure requirements?
To address the complexity of the business environment
Some of the reasons for the increase in disclosure requirements include: (1) Complexity of the business environment, (2) Necessity for timely information, and (3) Using accounting as a control and monitoring device.
How is the full disclosure principle, as adopted by the accounting profession, described?
Disclosure of any financial facts significant enough to influence the judgment of an informed reader should be disclosed.
According to GAAP, why is the disclosure of accounting policies adopted by a reporting entity important to financial statement readers?
To determine whether accounting policies are consistently applied from year to year
