Accounting Conventions - 4. Convention of Full Disclosure:

Accounting Conventions - 4. Convention of Full Disclosure:

     The convention of full disclosure means that the material facts must be disclosed in the financial statements. For instance, as regards the investments, not only the various securities held by a concern should be disclosed, but also the mode of their valuation should be stated. In the case of sundry debtors, not only the total amount of sundry debtors should be disclosed, but also the amount of good and secured debtors, the amount of good, but unsecured debtors and the amount of doubtful debts should be mentioned. In the case of fixed assets, their cost prices and the depreciation written off to date should be disclosed. Similarly, in the profit and loss account, all the expenses and incomes should be clearly stated.

     The idea behind this convention is that the financial statements are essentially meant for external users. It is on the basis of the information conveyed by the financial statements that the external users make decisions. As such, the financial statements should disclose as much details as possible. 

     The convention of full disclosure has been given recognition by the Companies Act. To ensure that all material facts are disclosed to the shareholders, the Companies Act has prescribed the form of the financial statements to be presented by companies to their shareholders.

     Apart from legal requirements, good accounting practice also demands that all significant facts should be disclosed in the financial statements.