Full Disclosure and Materiality Concept of Accounting

Full disclosure concept – Since financial statements contain information which is used by different groups of people such as investors, lenders, supplier, government and others in taking various financial decisions regarding the company. Hence 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.

Materiality concept – According to this concept accounting should focus on material facts. Efforts should not be wasted in recording and presenting facts, which are immaterial. The materiality of a fact depends on its nature and the amount involved. Any fact would be considered as material if it is rationally believed that its awareness would influence the decision of the person looking into the financial statements of the company. For example information about any change in the method of depreciation adopted would be significant information. In certain cases, when the amount involved is very small,. For example, stock of pens, pencils, are not shown as assets but as revenue expense, then this principal can be violated because this amount is too small for changing the decision of the person looking into the financial statements of the company.