The full disclosure principle:
A) Requires that companies use the same accounting method for inventory valuation period after period.
B) Is not subject to the consideration of materiality.
C) Prescribes that the notes to the financial statements report the change from one inventory valuation method to another.
D) Is also called the consistency principle.
E) Is only applied to retailers and manufacturers.

Question

Quizplus · Accepted Answer

The full disclosure principle requires that any significant accounting policies and methods used by a company be fully disclosed in the financial statements. This includes any changes in these policies or methods, such as a change in inventory valuation method. So, the notes to the financial statements report the change from one inventory valuation method to another. Option A is incorrect because the consistency principle requires that companies use the same accounting method for inventory valuation period after period. Option B is incorrect because the full disclosure principle is subject to the consideration of materiality. Option D is incorrect because the consistency principle is different from the full disclosure principle. Option E is incorrect because the full disclosure principle applies to all companies, not just retailers and manufacturers.

The Full Disclosure Principle