Notes to the Financial Statements

From Wikipedia, the free encyclopedia

This article does not cite any references or sources. (January 2008)
Please help improve this article by adding citations to reliable sources. Unverifiable material may be challenged and removed.

Notes to the Financial Statements are additional notes and information added to the end of the financial statements to supplement the reader with more information. Notes to Financial Statements help explain the computation of specific items in the financial statements as well as provide a more comprehensive assessment of a company's financial condition. Notes to Financial Statements can include information on debt, going concern, accounts, contingent liabilities, or contextual information explaining the financial numbers (e.g. to indicate a lawsuit). The information contained within the notes not only supplement financial statement information, but they clarify line-items that are part of the financial statements. For example, if a company lists a loss on a fixed asset impairment in their income statement, Notes to Financial Statements could serve to corroborate the reason for the impairment by providing specific information relative to how the asset became impaired. Notes to the Financial Statements are also used to explain the method of accounting used to prepare the financial statements (all publicly traded companies are required to use accrual basis accounting for financial reporting purposes as mandated by the SEC), and they provide valuations for how particular accounts have been represented. In consolidated financial statements, all subsidiaries should be listed as well as the amount of ownership (controlling interest) that the parent company has in the subsidiary companies. Any items within the financial statements that are valuated by estimation should be part of the Notes to Financial Statements if a substantial difference exists between the amount of the estimate previously reported and the amount of the actual results. Full disclosure of the effects of the differences between the estimate and the actual results should be in the note.