Disclosure of Accounting Policies
Accounting is the process in which companies record and report their financial transactions. Companies often prepare financial statements as the final result of the accounting process. External business stakeholders rely on this information for making decisions, which may require disclosures.
Facts
Generally accepted accounting principles (GAAP) is a principles-based system, meaning companies have some latitude when applying GAAP to their financial information. Accounting policies represent the company's interpretation of GAAP and how individual financial transactions are recorded in the company. Accounting disclosure are statements made by company owners and managers about how they develop and implement accounting procedures.
Features
Companies often make disclosures on inventory valuation, depreciation and the capitalization of expenses in operations. This information provides details on how these items will affect financial statements. Additionally, these statements allow business stakeholders to understand the rationale behind the company's accounting process.
Considerations
Large or publicly-held organizations usually make accounting disclosure in the company's quarterly or annual report released to the general public. Smaller businesses may create a simple memo or other document to include with their financial statements. The audience receiving the information should dictate how the company releases disclosures.
