- Information provided by financial statements are used by different groups of people such as investors, lenders, suppliers and others in taking various financial decisions.
- In the corporate form of organisation, there is a distinction between those managing the affairs of the enterprise and those owning it.
- Financial statements, however, are the only or basic means of communicating financial information to all interested parties.
- It becomes all the more important, therefore, that the financial statements makes a full, fair and adequate disclosure of all information which is relevant for taking financial decisions.
- The principle of full disclosure requires that all material and relevant facts concerning financial performance of an enterprise must be fully and completely disclosed in the financial statements and their accompanying footnotes.
- This is to enable the users to make correct assessment about the profitability and financial soundness of the enterprise and help them to take informed decisions.
- To ensure proper disclosure of material accounting information, the Indian Companies Act 1956 has provided a format for the preparation of profit and loss account and balance sheet of a company, which needs to be compulsorily adhered to, for the preparation of these statements.
- The regulatory bodies like SEBI, also mandates complete disclosures to be made by the companies, to give a true and fair view of profitability and the state of affairs.
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