Full disclosure principle

Full Disclosure Principle

The accounting principle requiring financial statements to include all relevant and material information needed for users to make informed decisions, either in the main statements or in the accompanying notes.

For example, a pharmaceutical company would disclose pending litigation over patent infringement in its financial statement notes, even if no liability has been recorded, as this information could influence investor decisions.

Full disclosure ensures transparency and prevents misleading financial statements through omission. Disclosures include accounting policies, contingencies, commitments, related party transactions, and subsequent events that might impact a company’s financial position or performance.