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The user of financial statements should be in a position to evaluate, and present and future cash flows. In general, they should be able to make intelligent investment decision necessary for efficient allocation of scarce resources. The relationship between security prices and information such as is contained in financial statements is called market efficiency. There is considerable evidence to prove that the securities market is efficient with respect to publicly available data, including those in financial statements.


Full disclosure means that published financial statements and related notes should include any economic information related to the accounting entity that is significant enough to affect the decisions of an informed and prudent user of financial statements. Full disclosure is aimed at improving the clarity, quality, and quantity of economic data disclosed by the accounting entity. It increases the relevance and reliability of accounting information.


Under GAAP, alternative accounting procedures, such as depreciation methods, inventory methods and methods of revenue recognition, are used under different circumstances.
Companies occasionally make changes in accounting or reporting procedures which affect

the comparability of financial statements. Full disclosure facilitates the functioning of an efficient capital market by providing additional information about items included in basic financial statements. This additional information may be useful in making investment decisions.


The problems of disclosure can be resolved in the light of the objectives of financial reporting. All countries do not have the same objectives. A study of FASBs SFAC No. 1, the Corporate Report, London, and the Stamp Report, Canada, reveals differences in objectives. Consequently, the solution to the problems of disclosure will not be the same for all countries. Basically the questions arises relating to disclosure need to be answered:


Who are the Users of Information?

Investors and creditors are common to all these countries, but employees, customers, society, government, and many others are also regarded as users. 2.

How Much Information Should be Disclosed?

All possible information relating to an entity cannot be disclosed in financial statements. That would make financial statements unwieldy, large, costly, and perhaps more confusing. Equally, relevant information must not be concealed from investors, creditors, and others. The information which is material to external decision makers, must be about disclosure of financial information. The three concepts of disclosure generally proposed are adequate, fair and full disclosure. Adequate disclosure means a minimum, amount of disclosure so that financial statements are not misleading. Fair disclosure would imply that the accounting and other information is unbiased and impartial. The objectives requires that there is equal treatment for all potential readers. Full disclosure means the presentation of all relevant information. Hence the answer to this question is that the users of financial statements should be provided with all the significant and relevant information, keeping in view the objectives of financial reporting, while the information, which is immaterial, irrelevant or insignificant should be to make the presentation meaningful and understandable. In actual practice, it has been noticed that companies are generally reluctant to disclose more information than what they are required to do under the law of the land or under professional pressure.


What Should be Disclosed?

What should be disclosed, depends again, upon the basic objectives of financial accounting and reporting. This is also related to the class of users. All that information which meets the needs of users in serving all the objectives, should be disclosed. This also depends upon the environment prevailing in a country. In underdeveloped economics, companies only disclose the balance sheet, profit and loss account; auditors report, and a few schedules and appendices. In developed economics, where the economic environment is predominant, besides the above, a SCF, a presidents letter, a five-year or ten-year summary highlighting additional financial information, such as turnover, capital investment, profit, dividend, important ratios, and the companys view about its future plans and prospects are also published. Further, in countries where the social environment dominates besides the economic one, information on value added, employees, customers, government, foreign

exchange, etc. is also given in annual financial reports. Hence, it is difficult to prescribe the same medicine for all patients. However, the following information will be useful to all categories of users in all countries: 1. The traditional financial statements, namely balance sheet, income statement, the statement of retained earnings, statement of cash flows, chairmans speech. Directors report, auditors report are usually included in the published annual reports of all the listed companies. This gives information on how the company has done in the past year, what its financial position was, and what the sources and uses of funds were. This is regarded as the minimum information required to be supplied to external users. 2. Besides the above, the laws of the land and professional pronouncements also require the following information to be disclosed in many countries: Disclosure of accounting policies, including those on valuation of assets.
Any changes in accounting policies on methods of valuation, methods

of charging depreciation, determination of earnings, etc. Events occurring after the balance sheet date. Disclosure of segment-wise accounting information. Interim reports of the companys performance and financial position. Supplementary information on accounting adjustments for changes in prices. Accounting for foreign transactions. Future prospects of the company.


How Should the Information be Disclosed?

The information should be presented in such manner that it can be easily understood by a person of average knowledge and prudence. He should derive the same meaning from the information, as it is purported to convey. The methods of disclosure of information have evolved as a result of the changing environment and consequential improvement in the ways of presentation effected by accountants on their own, on the recommendations of professional institutions, and as a result of government measures. Still, there are no hard

and fast methods of presentation. They differ from country to country, even from a company to company in the same country. However, the following financial statements are prepared and reported by all the listed companies: Balance Sheet Income Statement Statement of Retained Earnings Statement of Cash Flows


The balance sheet, the income statement and the SCF are the formal financial statements. It should be the effort of the preparers of these statements to disclose the most relevant and significant information in these statements. However, in many countries , these statements are prepared to meet the requirements of law, not necessary those of investors, creditors and other users. The form and content of the balance sheet and the income statement are prepared and presented in the traditional manner in strict adherence to law. Whether they show significant and relevant information or not, it is generally not the concern of the preparers.

Balance Sheet
The statement is meant to reveal the financial position of a concern on a particular day. The users of balance sheets want particularly to know how much the resources and claims to resources are. They like to know how much the insiders equity was and what was the amount of the outsiders equity in order to compute the figure of total capital employed or invested, and the resources in which it has been applied. They also want to know about the gross working capital and the net working capital. They are also interested in net current monetary assets to assess the liquidity of the firm.

Income Sheet
Traditionally called the Trading and Profit & Loss Account, this statement also does not provide information in a manner useful to users. Part I is the trading account, which shows gross profit. Profit II is the profit and loss account. This single-step statement, which associates all items of expense with all items of revenue becomes more misleading for the readers. The multi-step format is more useful.

Prior Period Items

Prior period items means errors of omission or commission belonging to a period earlier than the current period. Prior period items should be shown in the Statement of Retained Earnings or Profit and Loss Appropriation Statement. APB Opinion No. 30 has made this point clear. However, as per AS No. 5, this item is to be shown in the income statement. This approach is wrong. Prior period item belongs to the period(s) before the current period. It should not be shown in the income statement. This step will vitiate the current years income. Its rightful place is in the retained earnings statement. It is suggested that the multiple income statement should be a required statement, and AS No. 5 should be reviewed to remove the anomalies stated above. Disclosure of earning per share (EPS) should be made compulsory in the income statement.

Hitherto, this statement could be prepared either on the working capital or cash basis. A cash flow statement, in view of the emphasis on the objectives of financial statements to provide information useful to external users, has become more relevant for prediction of net cash flows.

The different terminology used in the presentation of financial statements is also a source of confusion and misunderstanding. Different terms are used in the United States, and England and other common wealth countries. This makes international comparisons somewhat difficult. In fact, all international organizations like IFAC and IASC, should take upon themselves the task of standardization of terms used in the preparation of financial statements on order to achieve international harmonization in accounting and reporting. Appropriate captions and descriptions of items in the financial statements should be made. Accounting data should be summarized to make it more meaningful and useful.

Additional information can be disclosed in many ways: be way of parentheses, footnotes, supplementary statements and schedules, letters to shareholders, directors report, auditors report, chairmans speech. There are other sources of information also, such as analysts reports, economic statistics, news articles about companies, insertions in the important dailies, journals and magazines.

Note to Financial Statements

Notes to financial statements can be in the form of (1) parentheses, and (2) footnotes. The ideal policy would be that all the significant information is given, in the body of a financial statement. Footnotes and supplementary information should be avoided. But in order to keep the financial statements wieldy and meaningful, it is prudent to give additional necessary explanation in parentheses or footnotes. If the captions or sub-captions are likely to be long, it will be better to disclose descriptive information in parentheses. If the space in a financial statement is not enough, footnotes should be made. Information, such as the method of valuation adopted, alternative valuations as current market price or any other current value, contingencies, pledges, number of shares outstanding etc. should preferably be given in parentheses. If the additional information or explanation is longer and would occupy more space, it is better to give it way of footnotes. In the interest of fuller disclosure it is better to have as many footnotes as are necessary. Most companies provide a lot of formation in the footnotes. Significant information should be given in the man body of a statement. Footnotes are not substitutes for main statements. Generally, footnotes are used for presenting non-quantitative information or additional information of secondary significance. However, long descriptions and explanations generally go unread. Users have a preference for figures, not so much for textual matter. Some companies annual reports have footnotes running into two or three full pages. These are likely to go unnoticed by many investors. Only analysts would like to read these in detail. Too much use of footnotes is not desirable. Footnotes are commonly used for stating accounting policy or change in methods, procedures or policy, contingencies, inventory valuation techniques, alternative measures, e.g., market values of items carried at historical cost, description of executory contracts, contingent assets and liabilities, rights of ordinary shareholders, restrictions on dividend payment, etc. No hard and fast can be laid down for disclosing a particular information in parentheses or in footnotes. Different are adopted by different companies. No standardization of practices is possible, much depends upon professional judgment.

Supplementary Statements and Schedules

Finance statements must be readable and understandable. This is possible only when summarized information is placed in the basic financial statement and details of the summarized information are given in schedules, for example, investments or long-term debt may be shown as a single item among the assets and liabilities respectively. The details of all the investments or long-term debt may be put in separate schedules. Those who wish to see the details of any item can look into the

schedules section. Similarly, expenses can be grouped under three or four convenient subheads in the income statement, while their details are made available in the schedule. The purpose of supplementary statements is to give additional information, rather than just more detailed information. The information that is not presented in the basic statements, but is deemed relevant and useful for prediction and other purposes, should be presented in supplementary statements, e.g., the effect of price changes on the financial position and income was presented in supplementary statements in USA and many other countries. In the UK current cost information was shown in supplementary statements. IAS No. 15 requires this information to be given in supplementary statements or notes.

Other Means of Financial Reporting

These include management discussion and analysis, and letters to shareholders. If the management wants to take the shareholders directly into confidence, a personal letter is addressed to every shareholder by a vary senior executive, generally the president of the company.

Directors Report
It highlights the financial position, other information and the results of operations of the company during the year just ended. It is a brief and to-the point report.

Auditors Report
The financial statements are the report of the management, and not of the auditor. However, the auditor cannot express an opinion that the financial statements are in conformity with generally accepted accounting principles if they contain any departure from the opinions of the FASB and former bodies. If a departure is made on the basis that the statement would otherwise have been misleading, the auditor must state in the auditors certificate the reasons for the departure and its effects. Hendriksen says that the auditors certificate serves as a method of disclosure of the following types of information: (1) a material effect from using accounting methods different from those generally accepted, (2) a material effect from changing from the generally accepted accounting method to another, and (3) a difference of opinion between the auditor and the client regarding the acceptability of one or more accounting methods used in the report. Similarly, the auditor (a C.A. member) in Bangladesh, while discharging his attests function, has to ensure that the Accounting Standards are complied with in the presentation of financial statements covered by his audit report. In the event of any deviation from the Standards, it is his duty to make adequate disclosures in his report so that the users of such statements may be aware of such deviations.

Chairmans Speech

This is actually delivered in the shareholders annual general meeting. It highlights the main policies of the company; changes, if any, made in the policies; future plans, and the general economic condition of the industry and the economy of the country as a while. Some of the speeches are highly enlightening, analytical and suggestive; others are routine.

Other Sources of Information

These include analysts reports, economic statistic, and news articles about a company, etc. Analysts Reports are prepared, specially in USA and other developed economies, where there is a developed capital market. The investors are enlightened, and wish to be well-informed. In the developing economies, such reports are not common. Various specialized agencies as well as government agencies develop economic statistics, which are quite useful in investment decision making. News articles and newspaper reports relating to a company are a means of making information publicly available, which is incorporated in the security prices in a semi-strong market Sometimes companies resort to presenting their viewpoint by providing information about its affairs, when there is a dispute or deadlock between the management and the workers, by way of big insertions in the daily newspapers, for the benefit of shareholders and the general public. This is not the general practice, but it has been resorted to by some large companies. Disclosure practices are very much determined by the objectives of financial reporting.

Abridged Financial Statements (AFS)

The companies Amendment Act 1988 has allowed abridged financial statements to be sent to members and others in place of full annual report. Clause 341 (iv) of the proposed Companies Bill also states that in case of a company whose shares are listed on a recognized stock exchange, a statement containing salient features of such documents will be sent to members of the company and others, 21 days before the annual general meeting. Earlier, the companies were required to provide a list of names of all the employees whose annual remuneration was TK 3000 or higher in the annual reports. This increased the volume of the annual reports which resulted in the escalation of the cost of printing the reports. The companies, therefore, desired that only abridged annual financial statements be sent to members and others before the annual general meeting. This step has curtailed the right of members to have a full and fair view of the state of affairs of their of their own company. Trueblood Committee (USA) on Objectives of Financial Statements had clearly stated:

Financial statements should serve primarily those users who have limited authority, ability and resources to obtain information and who rely on financial statements as their principal source of information about an enterprises economic activity. This statements pinpoints outside users to be supplied with full accounting information through these annual financial statements. If salient features of these financial documents only are to be sent to the members of a company, the primary purpose of providing full and fair information is not accomplished. Members of a company are after all investors of their funds therein. They should have the right to be supplied the full annual report without abridgement.

Summary Annual Reports (SAR) in USA

A SAR contains a condensed financial presentation in a more readable format than that of the traditional annual report. This approach is based on the concept of differential disclosure, i.e., certain stockholders need full disclosures but many need only highly summarized and less technical analysis of financial information. The SAR may provide the management with the opportunity to emphasis the good but not the bad conditions that are affecting the company. Further, the financial analysts do not seem to favour SARs because the reduced information is not likely to provide the type of information they desire. The idea of providing SAR to members in place of full reports should be dispensed with in the interest of full and fair disclosure.

In recent years, many business enterprises have broadened the scope of their activities to encompass different industries, foreign countries and markets. Due to the growth of diversified business and expansion of firms into foreign markets, consolidated information becomes nonhomogeneous information. Consolidated statements enable the management to hide information from external reporting. Some segments may be running at a loss, but the consolidated statements will merely show the average profit figure of all the segments taken tighter. It is, therefore, necessary that along with consolidated information, segment information is also provided to the users. Kockanek has stated that large companies with diversified product lines/marketing regions, which may differ from each other with respect to profitability growth potential and risk, evidently require segment reporting for highlighting different areas. Consolidated operating results from various product lines and markets do not provide a reasonable basis for analyzing the overall financial condition and making future estimates of cash flow.

Objectives of Segment reporting

Chasteen states that when a companys operations take place in several different industries or are located in different geographic areas, the difficulty of analyzing its financial condition, operating trends, the financial ratio can be greatly increased. The various industry segments or geographic areas of operation of the company can have different rates of profitability, different levels and types of risk, and different opportunities for growth. Such differences may be difficult to identify when only consolidated financial data is available for analysis. As a result, financial statement users believe that consolidated data is more useful when supplemented by disaggregated information to help them analyze the amounts, timing, and uncertainties of expected cash flows and risks associated with an investment or loan to a company that operates in different industries or different geographic areas. Segment reporting aims to provide this disaggregated information.

Bases of Segmenting
The following are the bases of segmenting: Product lines If a company has diversified its production activities, and is manufacturing different and distinct types of products, financial information can be provided on the basis of product lines. Geographical divisions If a company has operations extended in foreign markets, geographical division-wise segmentation will be relevant. This will be more relevant in the case of multinational corporations and other big companies with extensive overseas operations. Even within a country; there can be region-wise segmentation for better management and reporting purposes. Customer-type Classification may be relevant in case of those who look for comparability among firms. In this case a uniform standard industrial classification is necessary. Comparability can be among firms of the same size and type of operations. For investors that classification which permits the greatest degree of predictability will be most relevant.

Advantage of Segmentation
The main advantages of segmentation are that it enables prediction of future cash flows and risk in decision models, and makes comparability useful.

Problems of Segmentation

Some problems in the reporting of income for different segments of a business are related to the allocation of joint costs and the treatment of interdivisional transfer pricing. To be able to measure profitability of segments separately, it is necessary that their net assets are reported segment-wise. There are difficulties in the measurement of assets.

Accounting Standard (AS)

The Institute of Chartered Accountants of Bangladesh (ICAB) has so far issued following sixteen standards: AS1 AS2 AS3 AS4 AS5 Disclosure of Accounting Policies Valuation of Inventories Cash Flow Statements (Recommendatory) Contingencies and Events Occurring after the Balance Sheet Date Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies AS6 Depreciation Accounting AS7 Accounting for Construction Contracts AS8 Accounting for Research & Development AS9 Revenue Recognition AS10 Accounting for Fixed Assets AS11 Accounting for the Effects of Changes in Foreign Exchange Rates AS12 Accounting for Government Grants AS13 Accounting for Investments AS14 Accounting for Amalgamations AS15 Accounting for Retirement Benefits in the Financial Statements of Employers AS16 Borrowing Costs

Highlights of the standards are given below:

Accounting Standard-1: It deals with the disclosure of significant accounting policies

followed in the preparation and presentation of financial statements. The areas in which accounting policies need disclosure include: methods of depreciation, depletion and amortization; treatment of

expenditure during construction; conversion or translation of foreign currency items; valuation of inventories; treatment of goodwill; valuation of investments; treatment of retirement benefits; recognition of profit on long-term contracts; calculation of fixed assets; treatment of contingent liabilities, etc.

Accounting Standard-2: The financial statements should disclose: (a) the accounting
policies adopted in measuring inventories, including the cost formula used; and (b) the total carrying amount of inventories and its classification appropriate to the enterprise.

Accounting Standard-4: If disclosure of contingencies is required by the aforesaid

paragraph, the following information should be provided: (a) the nature of the contingency; (b) the uncertainties which may affect the future outcome; (c) an estimate of the financial effect, or a statement that such an estimate cannot be made. If the disclosure of events occurring after the balance sheet date in the report of the approving authority is required by the aforesaid paragraph of this standard, the following information should be provided: (a) the nature of event; (b) an estimate of the financial effect, or a statement that such an estimate cannot be made.

Accounting Standard-5: Accounting Standard-6: Accounting Standard-7: Accounting Standard-8: Accounting Standard-9: In addition to the disclosures required by AS-1 on Disclosure of
Accounting Policies, and enterprise should also disclose the circumstances in which revenue recognition has been postponed pending the resolution of significant uncertainties. Recognition of revenue requires that revenue is measurable. And essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use by others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits, the recognition of revenue is postponed.

Accounting Standard-10:

The following information should be disclosed in the financial

1. Gross and net book values of fixed assets at the beginning and at the end of an accounting period showing addition, disposals, acquisitions and other movements. 2. Expenditure incurred on account of fixed assets in the course of construction or acquisition; and
3. Revalued amount substituted for historical costs of fixed assets, the methods adopted

to compute the revalued amounts, the nature of indices used, the year of any appraisal made, whether an external value was involved, in case where assets are stated at revalued amounts.

Accounting Standard-11(Revised):

An enterprise should disclose:

(a) The amount of exchange differences included in the net profit or loss for the period
(b) The amount of exchange differences adjusted in the carrying amount of fixed assets

during the accounting period; and (c) The amount of exchange differences in respect of forward exchange contracts to be recognized in the profit or loss for one or more subsequent accounting periods. Disclosure is also encouraged of an enterprises foreign currency risk management policy.

Accounting Standard-12: The following should be disclosed:

(i) (ii) The accounting policy adopted for government grants, including the methods of presentation in the financial statements; The nature and extent of government grants recognized in the financial statements, including grants of non-monetary assets given at concessional rate or free of cost.

Accounting Standard-13: The following information should be disclosed in the financial

statements: 1. The accounting policies for determination of carrying amount of investments. 2. Classification of investment. 3. (a) Amounts included in the in the Profit and Loss Statement for interest, dividends, rentals on investments. (b) Profits and losses in disposal of current and long-term investments and changes in carrying amounts of such investments.

(c) Significant restrictions on the right of ownership, reliability of investment, or the remittance of income and proceeds of disposal. 4. The aggregate amount of quoted and unquoted investment giving aggregate market value of quoted investments. 5. Other disclosure as specifically required by the relevant statue governing the enterprise.

Accounting Standard-14: The following disclosures should be made in the first financial
statements following amalgamation: (a) Names and general nature of business of the amalgamation companies; (b) Effective date of amalgamation for accounting purposes; (c) The method of accounting used to reflect the amalgamation; and (d) Particulars of the scheme sanctioned under a statue. For amalgamation accounted for under the pooling of interests method, the following additional disclosures should be made in the first financial statements following the amalgamation: (a) Description and number of shares issued, together with the percentage of each companys equity shares exchanged to effect the amalgamation; and (b) The amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof. For amalgamation accounted for under the purchase method, the following additional disclosures should be made in the first financial statements following the amalgamation: (a) Consideration for the amalgamation and a description of the consideration paid or contingently payable; and (b) The amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof including the period of amortization of any goodwill arising on amalgamation. Where an amalgamation is effected after the balance sheet date but before the issuance of the financial statements of either party to the amalgamation, disclosure should be made in accordance with AS-4, Contingencies and Events Occurring after the Balance Sheet Date, but the amalgamation should not be incorporated in the financial statements.

Accounting Standard-15: The financial statements should disclose the method by which
retirement benefit costs for the period have been determined. In case the costs related to gratuity and other defined benefit schemes are based on an acturial valuation, the financial statements should also disclose whether the acturial case, the date of the acturial valuation should be specified and the method by described, if the same is not based on the report of the actuary.

Accounting Standard-16: The financial statements should disclose:

(a) The accounting policy adopted for borrowing costs, and
(b) The amount of borrowing costs capitalized during the period.