Failing to Provide Full Disclosure

In: Business and Management

Submitted By delaneyphx
Words 767
Pages 4
Consequences of Failing to Provide Full Disclosure There is a wide range of potential outcomes for failing to provide full disclosure in accounting. At the very least, failing to provide full disclosure is unethical, especially if the intention is to mislead about the true nature of business operations. A company could seriously damage its relationship with creditors, investors, regulators, and other third parties if they are found to be willfully withholding important information. In some cases, this could lead to a lawsuit if it resulted in damages to the third party. For example, if a company withheld information from it’s creditors and then defaulted on a loan, the creditor could likely sue for damages. Public companies are sued on a regular basis for failing to disclose relevant information to investors. On the other end of the spectrum, failing to provide full disclosure could be a criminal act under the Sarbanes-Oxley Act. Executives who failing to disclose information could be criminally liable if this was done with the intention of defrauding investors. This is a relatively new penalty that was implemented after many major corporate scandals, such as Enron and Tyco, among others. Although it takes an extreme disregard for the full disclosure principle to reach criminal penalties, it ensures that executives at publically traded companies are held to a high standard of financial reporting and honesty.
Statement of Cash Flows
The statement of cash flows is essential to understanding which business activities have the largest impact on a company’s use of cash. Three major categories are identified in the statement of cash flows, which include operating activates, investing activities, and financing activities. Several major functions are provided by this statement and it is commonly used by investors and creditors in the decision making process.

Similar Documents

Full Disclosure Financial Reporting Paper

...Running Heading: Full disclosure financial reporting Full disclosure financial reporting Mary Miller ACC/421 Intermediate Financial Accounting 1 University of Phoenix Cathy Reed October 8, 2012 Full disclosure principle in accounting The full disclosure principle in accounting is the action of revealing or reporting every detail of economic transactions, which can affect the financial position of the business and other people who use the financial statements, such as investor, creditors, etc. (What is the full disclosure principle? web -site). Why has disclosure increased substantially in the last ten years? During the last ten years, the full disclosure increase substantially because the FASB has issued several substantial disclosure provisions, such as Complexity of the Business Environment, Necessity for Timely Information, Accounting as a Control and Monitoring Device with the purpose to protect investors and the public security. Need for full disclosure in financial reporting Full disclosure in financial reporting is necessary because this report reflects the financial activities of the business, if this report is not accurate, and if information omitted or altered affects the decisions of the person using or reading the reports. The government created the SEC and FASB; these two organizations set guidelines to ensure that companies and business disclose the information required by the law. A full disclosure of a......

Words: 825 - Pages: 4

Education Failing

...Education Failing By May 7, 2013 Strayer University ECON 405 P Provide a brief overview / synopsis of the issue. The article suggest that the system is designed to fail from the start There are many factors that are failing our education system in America. The article explains some of the factors that are causing this problem. The main two topics that the article list as the problem are through the teachers union and the government. It also lays the blame for our education system failing on the students themselves for not taking a initiative, to the parents just passing the buck to the schools to educate their children and to the curriculum that is being taught. The government has the no child left behind act which to me seems that it just pushes a child through. It looks good in theory but it has not worked yet and it has been in effect for almost thirteen years now. The blame seems to be passed around like a hot potato, nobody wants to take the responsibility. They just want to blame each other for the mistakes. These are not even new problems that we are facing this problem has been going on for years and years. The statistics are there “the proficiency of math and reading among 8th graders” The math part broken down by a few states is Alabama 18%, Mississippi 14%, New Jersey 40%, Connecticut 35%, New York 30%, Arizona 26% and California 24% and for the reading side the states scored......

Words: 1115 - Pages: 5

Disclosure Principle

...The most significant case in my life where the disclosure principle played a role was the purchase of our house. Soon after we bought our new property in a well-known suburb of Sofia, problems came to light. When we were buying the house, we knew that it was not in a perfect condition, but we were unaware of many of the problems that we faced later. Because we bought the house from acquaintances, we did not find it necessary to hire a private inspector to do full inspection prior to the purchase. We bought the house in good faith and believed that the good price for it was due to the fact that the previous owner wanted to sell it immediately before going into foreclosure. Once the house was bought, we had to live the consequences of a house with a leak in the plumbing, a leak in the roof and an addition to it build with no permit at all. As a result, we were shouldered with the financial burden of filing a lawsuit to resolve the matter. Unfortunately, the court decided that we were not entitled to collect any damages because the house was purchased without a home inspection and also because there wasn’t an indemnity clause into the sales contract which stated that if there was a problem, it is the seller, rather than us, who suffers financially. Had we had an inspection report, we would have collected damages. Not only did we spend a fortune on the lawsuit, but we were also fined because we were the legal owners of a house with unpermitted work. Moreover, a private......

Words: 506 - Pages: 3

Full Disclosure Paper

...Full Disclosure Paper ACC/421 Full Disclosure Paper Disclosure is information regarding an activity of financial records that creditors, investors, and humans should know what when on in the company or organization regarding the finances increase or decrease. This includes strikes in the company, major fire, theft, a bad product, or a product that is at a high-demand regarding the time of year. Hurricane season in Houston a few years back. The weather reporter states that Houston, Texas is at threat of developing a hurricane, which will hit a specific area. The area has to prepare for the bad storm. The people in the area may have to leave their homes or stay and ride out the storm. The majority the people will go to Lowes or Home Depot to purchase lumber to board up their houses. Some will go to the nearest grocery store to stock up on water, can goods supplies, and items that a person do not have to cook. Others will go the nearest gasoline station to stock up on gas for their cars or generators in case the lights go out. Some go and withdrawal money out of their accounts for the emergency cash. They stated the storm would hit Katy, Texas and head toward Galveston, Texas. This covers a large area. Some people will the full effects of the storm and others just wind. At this time, the stores closed at three o’clock in the afternoon. Gasoline, Wal-Mart, Lowes, and Home Depot sold out of all items need to survive for the storm. Even the fast......

Words: 760 - Pages: 4

Failing School System

...Failing School Systems: Are Students to Blame? The United States educational system is failing. This topic is in the news repeatedly. Failing schools are a problem that must be fixed. However, it cannot be fixed until we figure out its real cause. Many people put the blame on the government, school officials, and teachers. Critics such as Geoffrey Canada, the founder of the Harlem Children’s Zone, say that the problem lies within the public schools. He states, “Public schools are bad, privately managed charter schools are good” (Ravitch 1). This may be a true statement but there must also be an underlying cause for low school performance. Nobody ever thinks the students may have something to do with this problem. The students are the ones who are taking the tests, paying attention in class and completing the homework. Nevertheless, from another view it may not always be the child’s fault. Maybe other factors contribute to this. Some students want to succeed but they do not always have the necessary resources to do so. These reasons are student’s determination, financial limitations, family support, insufficient housing, and poor nutrition. Some students do want to succeed in life however successful needs to be defined in order to figure out criteria for success. According to Merriam-Webster, success is an “a degree of succeeding” and “a favorable or desired outcome”. In other words, success is having a series of goals set in order to achieve a bigger goal or accomplishment...

Words: 1277 - Pages: 6

Risk Disclosure

...Financial stability and risk disclosure Keynote address by Mr Jaime Caruana, General Manager of the BIS, to the FSB Roundtable on risk disclosure, Basel, 9 December 2011. Abstract High-quality risk disclosure is good for markets, because it helps investors make more informed decisions. It is good for prudential supervisors, because it makes banks more accountable to both supervisors and investors. And it is good for financial stability, because it reduces the chance that unexpected events will disrupt the system. To be effective in promoting market discipline, disclosure must be complemented by strong incentives for counterparties to engage in monitoring. The public sector's role in promoting transparency arises from a number of market failures, including the externalities to be gained from common standards, the "free rider" problems that may lead to too little investment in producing and gathering financial information, and the tendency of markets to overreact to bad news when the information environment is clouded. Guided by these considerations, the Financial Stability Board and the Basel Committee on Banking Supervision have long supported improvements in transparency, through their work on accounting, disclosure templates and aggregate market data. At the same time, industry and investor representatives need to play a key role in developing disclosure standards. Accounting standards need to converge, standards for the discussion and analysis that accompany financial...

Words: 2400 - Pages: 10

Full Disclosure in Financial Reporting

...The full disclosure principle mandates financial reporting of any and all financial actualities, which are significant enough to stimulus the judgment of an informed reader. Complete financial reporting leads to durable capital markets by helping investors and creditors make knowledgeable decisions regarding an organization or business. The intent of financial reporting is to offer an objective look at a company’s financial status. In order for an informed reader to make a knowledgeable decision, there are certain components one must understand. Therefore, the context of this subject will be to outline the disclosure requirements on accounting policies and determine if this information is helpful for decision making. It will also examine the importance of the management discussion and analysis section of an annual report and its usefulness to influence potential investors. Segmented information will also be discussed and the ways in which companies determine segments. Finally, insight will be provided on the various types of auditor’s reports, and determination of the impact that the auditor’s report has on a company’s ability to obtain financing from a bank. Discuss the disclosure requirement on accounting policies, and identify at least two (2) examples of the most commonly required disclosure. Explain the key ways in which the examples you provided are useful to financial statement users. Analyze Verizon Communications’ disclosure on accounting policies, and give...

Words: 2504 - Pages: 11

Failings in Terms of Following Regulations

...respiratory equipment to deal with it. This meant he was hospitalised with iodide poisoning and leaves lasting effects such as depression, headaches and speech problems. The next was in June and July of 2012 when a worker was exposed to 3 times to the toxic substance due to insufficient training. This led to him having a full body rash with blisters on his wrists and ankles. e. The second incident on 26th July 2012, a worker almost died from a pulmonary embolism due to exposure to the substance. This was again due to poorly fitted respiratory equipment which has left them with permanent damage to speech, memory and mobility. Finally in November of 2012 three workers were exposed to Dichloromethane when a vessel was overfilled and overflowed into the ventilation system and because there was no alarm or device to warn that the vessel is overfilling and without respiratory apparatus they were fully exposed. They all were admitted to hospital. Archimica Ltd was fined £80,000 and Euticals Ltd was fined £20,000 for health and safety breaches and an extra £20,000 in environmental charges. (HSE, 2013) HSE inspector Mark Burton said “The multiple failings arising from this prosecution are extremely serious and could have had even more devastating consequences.” “Two of those exposed to methyl iodide have been left with permanent, life-changing after effects. The lack of competent management, control and understanding of the site’s major hazard and chemical processes could...

Words: 2454 - Pages: 10

Full Disclosure in Accounting

...Week four Full Disclosure Paper The full disclosure principle in accounting calls for financial reporting of any financial facts significant enough to influence the judgment of an informed reader. Another definition would be the principle under which all material facts (whose non-disclosure may render a financial statement misleading) must be disclosed. For example if by hiding anything in your cash flow statement would be misleading to a potential investor or partner, then you have not fully disclosed all of your financial data. The full disclosure principle states that any and all information that affects the full understanding of a company's financial statements must be included with the financial statements. Some items may not affect the ledger accounts directly. These would be included in the form of accompanying notes. Examples of such items are outstanding lawsuits, tax disputes, and company takeovers. Disclosure has increased because of the complexity of the business environment, the necessity for timely information, and the desire for more information on the enterprise for control and monitoring purposes (Rutgers, n.d., p. 4) The benefit is that an investor can determine the actual taxes paid by the enterprise. Such a determination is particularly important if the enterprise has substantial fluctuations in its effective tax rate caused by unusual or infrequent transactions. In some cases, companies only have income in a given period because of a...

Words: 752 - Pages: 4

Full Disclosure question, hence the need for a buyer to feel assured that what they think they are buying is in reality what it should be. In other words, the buyer needs to be assured before making the buying decision that the buyer knows all the relevant facts surrounding a purchase. This is the concept of full disclosure in Generally Accepted Accounting Principles or GAAP. If one looks at the long history of the markets with the repeating boom and bust patterns the world has witnessed, one has to ask why this happens. Many brilliant minds have been doing research into what motivates or de-motivates an investor when it comes to making a purchasing decision. Over time one thing has become clear, full disclosure of any significant enough financial facts that may influence the judgment of an informed reader must be made known to the public. The reason stems from the fact that in order for all markets to operate efficiently, its participants must be able to do the same and that is only possible if companies fully disclose any material events that might affect an informed reader’s decision to buy or sell a stock or other investment. The caveat here is what is material? In some cases, the disclosure of certain items would give away trade secrets or other competitive advantages, thus hindering a company’s future growth, profits, and cash flows. At the other end of the spectrum, if a company fails to report a significant event such as a pending lawsuit and the company has a judgment entered......

Words: 728 - Pages: 3

Full Disclosure

...Full Disclosure Principle Generally accepted accounting principles (GAAP) require certain information be disclosed in the audited financial statements of businesses. The full disclosure principle was adopted by the accounting professionals to ensure financial reporting of any financial facts significant enough to influence the judgement of an informed reader;” (Wiley & Sons, 2013). This principle is relevant to materiality and requires the full information be disclosed in the financial statements or in the notes to the financial statements. Need for Full Disclosure Full disclosure in financial report is necessary to help establish consistency in reporting from one company to another. It also standardizes accounting definitions, methods, and assumptions. The full disclosure principle exists to make sure the accounting policies are disclosed so users can understand what the basis of accounting in the company is, what the contingent liabilities are and how the company handled significant events or the details of property, plant and equipment. In short, the full disclosure principle is necessary so investors and other interested parties, who are familiar with reading financial information, have all the information to make informed, sound decisions about the company. The footnotes in the financial statements will disclose accounting policies regarding such things as revenue recognition, property depreciation policies, income tax and inventory accounting practices,......

Words: 849 - Pages: 4

Qwest: the Full Disclosure Principle

...Soon afterwards, Qwest’s stock price had increased significantly, to higher than its original price. It was later discovered that Qwest had not been following the full disclosure principle and were misrepresenting nonrecurring revenue from things such as the sale of capital equipment as “data and internet service revenues”. They also failed to disclose the impact of these nonrecurring revenues. This memo will discuss questions related to the ethics and importance of the full disclosure principle as it relates to this case. 1. The full disclosure principle states that you should include all information that would affect a reader’s understanding of those statements in an entity’s financial statements. This is very important because many of the people who read financial statements in order to invest are not trained accountants. Following the full disclosure principle will allow investors to make informed decisions concerning the company. 2. In this situation, Qwest’s failure to disclose the extent of nonrecurring revenue misled investors into thinking the company was making more money than it actually was. Not only did the company not disclose that a lot of the revenue was nonrecurring, it purposely miscategorized them as “data and internet service revenues”. This information did not follow the full disclosure principle and contributed to investors making poor decisions on the company. 3. This sort of misrepresentation could have been avoided if Qwest had followed......

Words: 616 - Pages: 3

Full Disclosure in Financial Reporting - Verizon Communications

...Assignment 1: Full Disclosure in Financial Reporting – Verizon Communications Due Week 9 and worth 200 points According to the textbook, the goal of financial reporting is to report financial information that is transparent and complete and truthfully report the financial performance of a company. Investors and other interested parties need to read and understand all aspects of financing reporting. Use the Internet to research Verizon Communications’ financial statements, annual report, notes to the financial statements, president’s letter, and management discussion and analysis from the most recent year in order to complete this assignment. Write a five to six (5-6) page paper in which you: 1. Discuss the disclosure requirement on accounting policies, and identify at least two (2) examples of the most commonly required disclosure. Explain the key ways in which the examples you provided are useful to financial statement users. Analyze Verizon Communications’ disclosure on accounting policies, and give your opinion on whether or not the information is helpful for decision making. Provide a rationale for your response. 2. Explain the importance of the management discussion and analysis section of an annual report. Select three (3) items from Verizon’s management and discussion analysis of the annual report that could be useful to potential investors. Provide three (3) specific examples of how the three (3) items you selected could influence a potential......

Words: 528 - Pages: 3

Full Disclosure Paper

...Full Disclosure Full Disclosure is a principle which calls for the reporting of significant financial facts that influence the decisions made by those reading the information (Kieso, 2007). The principle was adopted in 1933 as a byproduct of the 1929 economic crises, and created the full disclosure system. This system provides users of financial statements with material information, greatly improves the timeliness and quality of the disclosed information, reduces costs of raising capital, supports orderly markets, and discourages fraud in the public market. With the creation of the full disclosure principle regulations were formed on the technical and non-technical financial data that have an effect on the financial performance. These regulations have evolved rapidly in the past decade. These changes have been made due to the many examples of inadequate or poor data quality reporting standards that have so greatly affected the economy and the businesses involved. Technology and business have been evolving at a tremendous rate, so the regulations that once worked no longer sufficed. A gap was created between the reporting standards and business activity which resulted in poor economic conditions. The recent economic crisis in 2008 highlighted the need for more transparency if the reporting of financial data and the full disclosure principle. It became clear that as the market evolved, the reporting standards needed to evolve as well. The world is shrinking......

Words: 737 - Pages: 3

Full Disclosure

...Full Disclosure August 8, 2012 Organizations and regulators are interested in information made publicly to investors. The form in which the information is presented in financial statements is an important aspect. The full disclosure principle is a tool used to establish how financial information is presented on financial statements. The full disclosure principle in accounting is an important part of financial statements. Full disclosure “calls for financial reporting of any financial facts significant enough to influence the judgment of an informed reader” (Kieso, Weygandt, Warfield, 2010, Chapter 24, pg. 1 para. 3). According to the Generally Accepted Accounting Principles (GAAP), organizations should present an essential statement that identifies the accounting policies embraced and complied by the reporting body (Kieso, et al.). Full disclosure statements should be the first notes compiled on the financial statements. Purposes of the full disclosure principle include: * Provide ethical and honest conduct * Provide accurate and fair disclosures and financial statements * Provide compliance and accountability The full disclosure principle must be exercised to financial officers and executives with justifiable business judgment and faith. The full disclosure principle is not easy to implement in an organization. The full disclosure principle can be costly to an organization, and the benefits are often hard to assess. Disclosure requirements have......

Words: 622 - Pages: 3