Principles-based accounting standards increase subjectivity and judgment while organizations interpret and adopt the standard, resulting in greater financial disclosure. This research helps corporate controllers understand the process leading organizations used to craft principles-based disclosures.
Adequate Disclosure: Lessons From the SEC
Table 1: SEC Staff Comments Surrounding Three Areas of Technical Judgment
4 Steps to Craft Principles-Based Disclosures
1. Identify Significant Areas of Judgment Upfront
2. Document the "How" and "Why" of Internal Policy Decisions as They’re Reached
3. Signal Key Judgment Areas to Focus Audit and Disclosure Committees’ Reviews
4. Gather Benchmarking Input on Length, Granularity and Language Used in Disclosures
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