Commercial Applications
Ms. Mira is auditing a company's financial statements and notices that no footnotes have been provided for significant liabilities. Which accounting principle is most likely being violated?
- Matching Principle
- Revenue Recognition Principle
- Principle of Full Disclosure
- Conservatism Principle
GAAP
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Answer
Principle of Full Disclosure
Reason — The Principle of Full Disclosure requires that accounts should be prepared in such a way that all material information required by users of financial statements is clearly disclosed, including by way of footnotes or annexures. Failure to provide footnotes for significant liabilities (e.g., contingent liabilities) violates this principle.
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Related Questions
Accounting principles are necessary due to which of the following reasons?
- To identify and classify economic transactions for meaningful presentation.
- To ensure uniformity in accounting records.
- These principles represent a scientific approach to financial statements.
- All of these
Regarding fundamental accounting principles, which statement accurately reflects the "Entity Concept"?
(1) The Entity Concept emphasizes that a business's financial activities should be reported separately from the personal finances of its owners.
(2) The Entity Concept dictates that all transactions should be recorded using a single currency.
(3) The Entity Concept suggests that the money withdrawn by the proprietor from the firm for his personal use should be treated as drawings.
(4) The Entity Concept focuses on matching revenues and expenses to determine net income.
- Only 1
- 2 & 3
- Only 4
- 1 and 3
On the basis of this concept, only those transactions are recorded in accounts which can be expressed in terms of money.
- Money measurement concept
- Accounting period concept
- Business entity concept
- Realisation concept
This concept assumes that the business will continue to exist for a long time in the future.
- Money measurement concept
- Going concern concept
- Business entity concept
- Realisation concept