Why is it important for the method of depreciation, depletion, or amortization to be disclosed in the financia

Question

Why is it important for the method of depreciation, depletion, or amortization to be disclosed in the financial statements?

Answer 1

Financial statements are desgined to reflect the net income of a company. Because the method of depreciation (depl & amort) impacts the future expenses, investors need to know how a company is applying these to allow them to project future results and to compare companies in the same industry (i.e., they may have adopted different methods).

More info is better than less.

Answer 2

In principal financial statements should be unambiguos, truthful, exact and periodic. There are many depreciation methods in advanced accounting practicing countries like US, straight line, some of the year digits etc;. By choosing the particular accounting method a company is able to gain tax incentives during their operating period. If this is not disclosed the person using the financial statement won't be able to get a clearer picture of what the company is making and how, whether at what stage of life cycle it is in, or how much tax advatage it gained by choosing the particular depreciation method or what it would have lost otherwise.