...in 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 against...
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...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...
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...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 increased...
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...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 inspector...
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...* Business Entity: assumes that the business is separate from its owners or other businesses. Revenue and expense should be kept separate from personal expenses. * Going Concern: assumes that the business will be in operation indefinitely. This validates the methods of asset capitalization, depreciation, and amortization. Only when liquidation is certain this assumption is not applicable. The business will continue to exist in the unforeseeable future. * Monetary Unit principle: assumes a stable currency is going to be the unit of record. The FASB accepts the nominal value of the US Dollar as the monetary unit of record unadjusted for inflation. * The Time-period principle implies that the economic activities of an enterprise can be divided into artificial time periods. §Principles[edit] * Historical cost principle requires companies to account and report assets & liabilities acquisition costs rather than fair market value . This principle provides information that is reliable (removing opportunity to provide subjective and potentially biased market values), but not very relevant. Thus there is a trend to use fair values. Most debts and securities are now reported at market values. * Revenue recognition principle holds that companies should record revenue when earned but not when received. The flow of cash does not have any bearing on the recognition of revenue. This is the essence of accrual basis accounting. Conversely, however, losses must be recognized...
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...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 and...
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...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...
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...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 food...
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...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...
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...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 financial...
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...JOURNALISM (PCIJ), (COLLECTIVELY, THE "RIGHT TO KNOW. RIGHT NOW! COALITION") EXPLANATORY NOTE The people's right to information held by government is expressly recognized in no less than the Constitution. Article III (Bill of Rights), Sec. 7 of the 1987 Constitution states: The right of the people to information on matters of public concern shall be recognized. Access to official records, and to documents and papers pertaining to official acts, transactions, or decisions, as well as to government research data used as basis for policy development, shall be afforded the citizen, subject to such limitations as may be provided by law. Complementing the Bill of Rights provision on FOI is the state policy of full disclosure of all state transactions involving public interest. Article II (Declaration of Principles and State Policies), Section 28 reads:...
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...Analyst information intermediation – private and public information –and the central role of knowledge and social forces in economic processes in the ‘market for information’. John Holland, University of Glasgow, Jo Danbolt, University of Edinburgh, Lei Chen, University of Keele. John Holland, University of Glasgow, The Adam Smith Business School, University of Glasgow, Main Building, Glasgow, G12 8QQ, Scotland Abstract: This paper develops a model of the information intermediation role of analysts in the ‘market for information’ (MFI). It illustrates how the same type of ‘soft’ intangibles information changes as it progresses through analyst information intermediation processes. The latter concern: company disclosure; analyst acquisition and analysis of company information; analyst reporting processes; and market impacts. The common information concerns ‘soft’ or qualitative information about the company intellectual capital (IC) or intangibles in the company business model. Banks and bank analysts are used as examples. Knowledge, social and economic factors in the wider ‘market for information’ (MFI) are shown to be major influences on ‘soft information’ and how it changes in analyst information intermediation processes. Negative knowledge and social factors play a role in weakening and eventually destabilising economic processes in analyst and the MFI. They were important factors in creating knowledge and information problems in analysts and the MFI, both ongoing...
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...Journal of Economic Literature 2010, 48:4, 935–963 http:www.aeaweb.org/articles.php?doi=10.1257/jel.48.4.935 Quality Disclosure and Certification: Theory and Practice David Dranove and Ginger Zhe Jin* This essay reviews the theoretical and empirical literature on quality disclosure and certification. After comparing quality disclosure with other quality assurance mechanisms and describing a brief history of quality disclosure, we address two sets of theoretical issues. First, why don’t sellers voluntarily disclose through a process of “unraveling” and, given the lack of unraveling, is it desirable to mandate seller disclosure? Second, when we rely on certifiers to act as the intermediary of quality disclosure, do certifiers necessarily report unbiased and accurate information? We further review empirical evidence on these issues, with a particular focus on healthcare, education, and finance. The empirical review covers quality measurement, the effect of third-party disclosure on consumer choice and seller behavior, as well as the economics of certifiers. ( JEL D18, K32, L15, M31) 1. Introduction A young couple expecting their first child might consult healthgrades.com hospital rankings to help choose where to deliver their baby. A year later, the couple decides they need an SUV and consults performance specifications provided by manufacturers and reads Consumer Reports to learn about reliability. Soon thereafter, the couple ...
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...Introduction This report will give an overview of the aim behind collecting data, types of data collected, methods used and how the collection of the data supports the department’s practices. It will also give a brief outlook on the importance of legislation in recording, storing and accessing data. Why Organisations Need to Collect Data To satisfy legal requirement: every few months there is some request from the government sector to gather, maintain and reports lots of information back to them on how many people do we have in the organization, working hours, how much our expenses for the whole year, we should keep data stored in case information is needed to defend the company legal actions that could arise at any time To provide documentation in the event of a claim: safety legislation and health required that require that records are kept of accidents , whenever an employee make claims to employment tribunals and the employer need to defend such a case he will demands on the accuracy and comprehensive of personal records To provide the organization with information to make decision: since the computer software is developed the information is more readily available, will aid identify problems and helps in taking decision in relation to promotion and salary increases. Types of data that is collected within the organization and how each supports HR or L&D practices There are 2 types of Data that is collected by HR Functions and below is a description of...
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...Ownership and Disclosure A Review of Literature By BADRU Bazeet and Mousa Sharaf Adin Hezam Abstract This is a review of various literatures on ownership and disclosure which has been carried out by various researchers in different countries. So far majorities of the researchers shows that the extent of corporate disclosure is negatively associated with a higher management of ownership structure and the extent of corporate voluntary disclosures is positively related with a higher institutional ownership structure. But findings also show that the negative relationship is weaker if the firm has a higher proportion of independent non- executive directors. Introduction Ownership Structure is a mechanism that aligns the interest of Shareholders and Managers. Corporate governace is the capstone of the activities that can reduce agency costs. Corporate mangers disclosure policies are influenced by firm’s ownership and governance on the level of various types of information disclosure. This is a summary of literature review on ownership structure and corporate disclosure. Studies have shown that ownership structure can be state, legal, managerial and block holder depending on the countries and cultural environment. Blockholder ownership is the percentage of shares held by substancial shareholders( that is shareholdings of 5% or more). Jensen and Meckling (1976) argue that substancial shareholders are expected to have both greater power and incentives to monitor management, as...
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