What is the full disclosure principle in accounting?

• A. Only the bare minimum of information is required
• B. Financial statements must include important information for users, often in footnotes
• C. Only legally required information must be disclosed
• D. All information must be kept confidential

Answer: (B)

The full disclosure principle in accounting mandates that financial statements must present all information that is relevant and important to users, which is often provided in the form of footnotes. This principle ensures that stakeholders, such as investors and creditors, have access to all necessary information to make informed decisions regarding the financial position and performance of an entity. The underlying rationale is to promote transparency and allow for a better understanding of the financial statements beyond the basic numbers presented.

This principle goes beyond just reporting the standard figures in the financial statements; it encompasses disclosing any additional information that could affect evaluations of those figures, including accounting policies, risks associated with financial instruments, and other relevant context. By including such footnotes, the full disclosure principle enhances the clarity and usability of financial information, allowing stakeholders to understand the nuances and potential implications of the financial reporting.