Full Disclosure in Financial Reporting Q1. essay


FullDisclosure in Financial Reporting

Q1. For any business, the Full Disclosure Principle requiresall information that influences thorough understanding of financialstatements to be included in the financial statement (Averkamp,2016). Items that do not directly affect accounts ledger are includedin the financial reports in the form of accompanying notes. Theobjective of sound financial coverage is to provide an objectiveanalysis of the financial status of a company. Averkamp (2016)explains that the required disclosures are found in places such asfinancial statements and supplementary footnotes, management analysisand discussions. Also, disclosures can be found in quarterly earningsreports and other communications including press releases.

Accordingto Elliott &amp Elliott (2006), accounting policies are essentialfor sufficiently comprehending the information presented in financialstatements. Significant conclusions must accompany the disclosure ofthe accounting policies. The accounting policies identify the methodused to evaluate depreciation, inventory valuation and theamortization of intangibles. This is necessary as accountingstandards permit different methods to account for the sametransaction. Giacomino &amp Akers (2010) claim that changes in theaccounting policies must also be unveiled if the amendment ismaterial to the present period, or is convincingly anticipated tohave material effects in the subsequent period.

Inthe analysis of Verizon, the management articulated their plant,property and equipment depreciation method in their 2015 AnnualReport. The report states that plant, property, and equipment arerecorded at cost. The depreciation estimates cover the useful life ofthe asset using the straight-line technique (Verizon, 2015). Thedisclosure of depreciation enables users of financial informationfrom Verizon to evaluate precisely these figures with those fromother companies. This information is important as variations in netreturns could be influenced by the depreciation approaches employed.Also, the company noted an accounting standard update relating toreporting of discontinued operations in the first quarter of 2015.The update affected the disclosure of disposals of an entity’scomponents. The update requires the reporting that the disposal of abody’s part is in discontinued operations provided the act has astrategic shift that, in turn, has or is expected to have significanteffects on the operations and financial outcome of the entity(Verizon, 2015). However, Verizon did not adopt the simplification ofrelating to accounting for measurement period adjustments updateissued in September 2015. The reason provided is that the update didnot have any effect on the company’s consolidated financialstatements (Verizon, 2015).


TheManagement Discussion and Analysis (MD&ampA) section represent aninterconnected component of yearly financial statements of any entity(Elliott &amp Elliott, 2006). This section covers the capitalresources, liquidity, and operations results. The section alsoidentifies positive and negative movements, and spot considerableproceedings and qualms that impinge on the factors mentioned. Thissection gives a description of the company’s financial status andthe performance of the entity in preceding years and futureprojections from the management’s perspective. Elliott &ampElliott (2006) argue that this section includes information such asthe mission and organizational structure as well as performance goalsand results, systems and controls. The effects of existing demands,threats, uncertainties, events, conditions, and trends are alsocaptured by the MD&ampA (Giacomino &amp Akers, 2010)

TheVerizon’s MD &amp A is portrayed by comparing the relationship ofgrowth in revenue services, trends and future investment projectionsof the current subsequent years. The company posted growth inoperating revenue by 3.6 % while wireless revenues increased from $87.6 in 2014 to $91.7 in 2015 (Verizon, 2015). The company attributesthis growth to the increase in demand for tablets, Smartphone,internet devices and other Internet services. The wireless retailconnection rose from $108.2 in 2014 to $112.1 in 2015 representing a3.6% rise. The company also experienced a growth of 3.5 % growth inWireline consumer retail revenues (Verizon, 2015). These trendsindicate that Verizon is a stable venture which is expected tocontinue raising more revenue in the future for potential investors.The capacity of the enterprise to realize and categorize drifts thatmight affect it offers a valuable preliminary spot to acknowledgevarying market needs from its resources. This enables theorganization to seek associates who offer advantageous products,technological advances or production capabilities to maintain theircontinuation. Additionally, Verizon distinguishes itself from rivalfirms by offering superior communication services and centering onessentials of operating a flourishing company (Verizon, 2015). Thefuture projections of the firm are encouraging since it believes inits investment capabilities and the projection that the servedmarkets continue to position the company to create a long-standingreturn for shareholders, the viability of the company, and society(Verizon, 2015). From the perspective of an investor, the commitmentsby Verizon to pay attention to its trademark guarantee a strongcustomer base.


Compulsorysegmented information accompanies financial statements. Segmentationprovides creditors and investors with information about the financialresults and situation of the most central divisions within the firm.Giacomino &amp Akers (2010) explain that enterprises are required tocategorize any section involved in operating activities from which itmay generate revenue and incur expenses, in which split financialinformation is obtainable, and whose outcomes are regularly assessedby the firm`s head operations officer for performance review andresource allocation decisions. A firm must give details of segmentsif the collective outcomes of two or more operating sections haveanalogous merchandise lines, services, routine, clients, deliverytechniques, and regulatory environs (Elliott &amp Elliott, 2006).

Segmentationhas its advantages and disadvantages depending on the intended use ofthe information. One advantage is that it provides lucidity since itdiscloses profitable as well as struggling departments within anorganization. Also, segmentation permits investors to assess theprobable instability that could affect the general routine. Forinstance, when a business reports elevated income than estimated,segmentation gives an explanation for the source of the variation.More so, segmented data provide an opportunity to foresee into thefuture results of the organization. Overall profitability of acompany may arise from one department while others may be performingpoorly eventually resulting in losses (Epstein &amp Lee, 2011).Under this circumstance, segmented data may act as the keyperformance indicator.

Disadvantagesoccasioned by segmentation comprise focusing on temporary outcomes,data exploitation, and larger competitive threat. Focusing onimmediate results could lead to demands from stake owners to sell offunderperforming departments to raise temporary returns. Additionally,segmented information enables the executive to stage-manage ordisguise unsuccessful operations owing to how the sections arerecognized. Finally, segmented information render businesses tocutthroat competition risk as the data provide external users withinsightful details. This risk might lead an organization intosurrendering its leverage when negotiating for acquisition (Epstein &ampLee, 2011).

Whilesegmented information presents considerable drawbacks, the benefitsoutweigh these disadvantages by providing users of financialstatements with the capability to examine business operations fromthe perspective of the management. Furthermore, users have pertinentinformation that is applied in enhanced comprehending of operationsand the enterprise cash flow potential. From Verizon’s financialreport, the company has two reportable segments namely Wireless andWireline. These divisions are strategically handled as business unitsand systematized by products and services. Each unit is measured andassessed depending on its operating income. Revenue before interest,taxes, depreciation and amortization are not measured by GAAP so asto determine operating productivity on a more variable costfoundation (Verizon, 2015). The company’s management can improveits segmented financial information by providing a non-GAAPmeasurement as well as giving details on how the analysis resolvesback to GAAP.


Reportsfrom editors provide vital sources of information that legitimatelyappraise the financial position of the business (Elliott &ampElliott, 2006). An auditor provides an evaluation of the financialposition and the future of an organization in collaboration with theauditor’s authorized valuation of the firm’s financial status.Four kinds of reports are provided by auditors which includequalified and unqualified and disclaimer opinions. The unqualifiedopinion is often provided, and it conveys the view that financialstatements presented by an entity are in agreement with general GAAPsand is annulled of falsification (Epstein &amp Lee, 2011). Thereport, accompanied by three clauses, includes the term “Independent”in its heading to exemplify that it was prepared by an impartialthird party. The three paragraphs summarize the objective of theaudit, duties, and the findings of the auditor. Qualified opinionencloses exclusion to the universal judgment. The arrangement of thequalified opinion report is parallel to the unqualified one butincludes an extra clause that states the reason why the audit reportfails to be unqualified. An adverse opinion is the third but uncommonreport that is provided when the view of the auditor concerning thefinancial statements fails to be conventional to GAAP and is fullydistorted. The disclaimer opinion is the final report and is issuedwhen the auditor fails to obtain adequate data regarding an entity’sfinancial report hence an opinion cannot be availed.

Theauditor’s statement has a definite effect on the ability of a firmto obtain funding from a bank as it reduces the cost of capital.Also, the report present monetary worth as it gives an assertion thatthe financial information is correct and truthful. Verizon’sautonomous auditor designate an unqualified opinion concluding thatthe financial statements are presented reasonably in all materialrespect and compliance with GAAP (Verizon, 2015). The unqualifiedreport file Verizon’s financial statements as true and correct andtherefore financial institutions would not consider the company asrisky. The financial institutions would thus be ready to providefinances for the enterprise.

Itis vivid that financial information provides an overview of firm’sfinancial position and performance. The financial report serves tocommunicate with potential investors who wish to provide resources.It is imperative to understand how an entity derives its policies andsegmentation information as they enable investors to makecomparisons. The MD&ampA section is a vital element as it provides adescription of the firm from the perspective of the management.Verizon has done exemplary well to provide accurate and genuinefinancial report, and that conforms to GAAPs.


Averkamp,H. (2016). Whatis the full disclosure principle? AccountingCoach.AccountingCoach.com.Retrieved 4 May 2016, fromhttp://www.accountingcoach.com/blog/what-is-the-full-disclosure-principle

Elliott,B. &amp Elliott, J. (2006). Financialaccounting, reporting and analysis.Harlow: Financial Times/Prentice Hall.

Epstein,M. &amp Lee, J. (2011). Advancesin management accounting.Bingley, UK: Emerald.

Giacomino,D. &amp Akers, M. (2010). Proposed Financial Statement Changes:Reactions To The FASB-IASB Discussion Paper. JournalOf Business &amp Economics Research (JBER),8(7).

verizon,.(2015). 2015Verizon Annual Report.Verizon.com.Retrieved fromhttp://www.verizon.com/about/sites/default/files/annual/verizon-annual-report-2015.html