CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions
A company's annual report includes notes on contingent liabilities, a change in depreciation method and the basis of inventory valuation, so that users are not misled. Which convention is mainly being followed?
The convention is full disclosure. It requires financial statements to reveal all significant and relevant information, including accounting policies, changes in methods and contingent liabilities, so that users are not misled when making decisions.
- AFull disclosureCorrect
- BConservatism
- CConsistency
- DGoing concern
Explanation
Reporting all material information, including notes on policies, changes and contingent liabilities, is the convention of full disclosure. Consistency would require keeping the methods unchanged, and conservatism concerns provision for anticipated losses.
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