Essay on Full Disclosure

744 Words Jul 27th, 2011 3 Pages
Would someone buy a bike or other item sight unseen? The answer is, most likely not. Why is that? The answer is that most people want to buy value with their purchase, not just the item in question, hence the need for a buyer to feel assured that what they think they are buying is in reality what it should be. In other words, the buyer needs to be assured before making the buying decision that the buyer knows all the relevant facts surrounding a purchase. This is the concept of full disclosure in Generally Accepted Accounting Principles or GAAP.

If one looks at the long history of the markets with the repeating boom and bust patterns the world has witnessed, one has to ask why this happens. Many brilliant minds have been doing research
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For example, imagine what could have happened if the cigarette manufacturers did not disclose they were being sued for billions of dollars and if the media did not broadcast the story. While this did not happen, nor could it in reality, the concept is sound that if an investor bought stock in a company without the knowledge of the lawsuit, it could and would have a drastic effect on the assets of the investor once the cigarette companies lost the lawsuit and their stock prices took a big hit. Would that investor still have made that buying decision if they knew the risk of the lawsuit? Well, we cannot know since individual risk cannot be quantified, but the full disclosure principle dictates that the market participants must create a level playing field and the only way to do that is to fully disclose any material events or items that would be important to an educated party when making a buy or sell decision.

The reason full disclosure has increased substantially in the last 10 years is due to the advent of computer technology and the internet. Previously investors had to wait for financial statements to be published and mailed by companies before they could dig into the numbers and for a financial health picture for any company. Now, investors want up to the minute data where and when possible and the internet and computer technology is making that possible. In

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