What does 'full disclosure' in financial reporting entail?

Full disclosure in financial reporting entails giving sufficient information for complete understanding of a company's financial position and performance. This principle is fundamental to the preparation of financial statements, as it ensures that users of the financial information have access to all relevant data that may influence their decisions. Adequate disclosures allow stakeholders, including investors, creditors, and analysts, to evaluate the risks and opportunities associated with the financial statement and the overall financial health of the organization.

While providing only essential information might seem beneficial, it could lead to a lack of transparency or explainability in the financial statements, which is contrary to the objective of full disclosure. Mandatory disclosure of every transaction goes beyond the practicalities of financial reporting since it could overwhelm users with excessive detail that isn’t necessarily relevant for informed decision-making. Sharing internal documents with stakeholders does not align with the definition of financial reporting and is more about internal processes than the clarity and transparency expected from published financial statements.

Therefore, the essence of full disclosure is about ensuring that all significant information is included in a manner that supports informed decision-making processes by the users.