The full disclosure principle:
A)Is also called the consistency principle.
B)Prescribes that companies use the same accounting method for inventory valuation period after period.
C)Is not subject to the materiality principle.
D)Is only applied to retailers.
E)Prescribes that the notes to the financial statements report when a change in inventory valuation method is made, its justification and its effect on net income.

Question

Quizplus · Accepted Answer

The full disclosure principle prescribes that companies report any material information that could impact a user's understanding of the financial statements. This includes reporting changes in accounting policies, such as inventory valuation, and their impact on net income. Therefore, the correct answer is E.

The Full Disclosure Principle