Full Disclosure in Financial Reporting

FASB Concepts Statement No. 1notes that some useful information is better provided in the financial statements, and some is better provided by means of financial reporting other than in financial statements. For example, earnings and cash flows are readily available in financial statements--but investors might do better to look at comparisons to other companies in the same industry, found in news articles or brokerage house reports. Financial statements, notes to the financial statements, and supplementary information are areas directly affected by FASB standards. Other types of information found in the annual report, such as management's discussion and analysis, are not subject to FASB standards. Illustration 24-1 indicates the types of financial information presented. As indicated in Chapter 2, the profession has adopted a full disclosure principle that calls for financial reporting of any financial facts significant enough to influence the judgment of an informed reader. In some situations, the benefits of disclosure may be apparent but the costs uncertain. In other instances, the costs may be certain but the benefits of disclosure not as apparent. For example, the SEC increased the amount of information financial institutions must disclose about their foreign lending practices. With some foreign countries in economic straits, the benefits of increased disclosure about the risk of uncollectibility are fairly obvious to the investing public. The exact costs of disclosure in these situations cannot be quantified, though they would appear to be relatively small.