Commercial Applications
"Accounts should disclose all material information" (with reference to the concept of accounting). Justify either for or against by giving two reasons.
Answer
FOR — The statement is correct and is based on the Principle of Full Disclosure.
Reasons:
True and Fair View of Financial Statements — Accounts are considered true and fair only when all material information is clearly disclosed. Information such as change in method of depreciation, change in method of stock valuation, market value of investments and contingent liabilities must be disclosed (by way of footnotes or annexures) so that the financial statements give a complete and understandable picture of the economic affairs of the firm.
Protection of Stakeholders' Interest — Different users — owners, investors, creditors, employees, government, etc. — rely on financial statements to make important decisions. Concealing material facts may mislead them.The Companies Act has also prescribed the proforma and contents of the Balance Sheet and Profit & Loss Account to ensure full disclosure.
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