What is Adequate Disclosure?

Adequate disclosure is the concept that the complete package of an entity's financial statements and accompanying disclosures should provide all key information needed by users to understand the entity's financial situation. Users need an adequate level of disclosure to make good decisions regarding whether to provide credit to or invest in an organization. When there is an inadequate level of disclosure, it can mean that management is deliberately attempting to mislead the investment community.

The adequate disclosure concept does not apply when financial statements are only being distributed internally, since it is presumed that management already has a firm knowledge of the financial results and financial position of the business. Consequently, financial statements produced solely for internal consumption tend to contain much less detail than those issued to outside parties.