Financial Statement Footnotes - Explained
What are Financial Statement Footnotes?
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Table of ContentsWhat are Footnotes to The Financial Statements?How are the Footnotes To The Financial Statements Used?Information Contained Within FootnotesThe Use of FootnotesAcademic Research on Footnotes To The Financial Statements
What are Footnotes to The Financial Statements?
When companies file their annual financial statements, they often add footnotes beneath the statement. Footnotes to the financial statements refer to extra information that a company supplies about its finances when filing a financial statement. Footnotes are also called supplementary notes that explain the figures and accounts contained in the company's financial statements. For clarity purpose, points and information that aid a better understanding of the financial accounts such as balance sheet and income statement are supplied as footnotes. Reading the footnotes to the financial statements is important to having a clearer picture of how the company realized its figures and how certain accounts are generated.
How are the Footnotes To The Financial Statements Used?
Footnotes to the financial statements should not be neglected by auditors or analysts when checking the financial reports of a company for a period of time. The footnotes supply more details that are mostly not included in the main report, this is why footnotes are called explanatory notes. Diverse parts of the financial statements are given more explanation in the footnotes to the financial statements. Although, footnotes do not make up the main financial statements, they serve important functions. For better clarity and comprehension of the financial status of the company, reading the footnotes to the financial statement is essential.
Information Contained Within Footnotes
There are some important information that footnotes to the financial statement contains. Below is an overview of these cogent information;
- Clarification of the figures contained in the financial statements.
- Explanation of inconsistencies or irregularities that might be found in the financial statement.
- Disclosure of values of figures and adjustments made to them in the process of filing the financial statement.
- Explaining the type of accounting methodology used in the company's financial statements.
- Stating the changes made to existing accounting methodologies if there is any.
- Supplying details of all transactions and employee-compensation plans if there are any.
The Use of Footnotes
It is necessary that companies add footnotes to the financial statements when filing their annual reports. Information that is not contained in the main report are easily accessible through the footnotes, the footnotes serve as additional information that explain cogent statements and accounts contained in the financial statements. Also, there are some terms used in financial reports that are complex, so also some calculation techniques, through the footnotes, readers can gain insights on the complex terms and calculation methods used. Footnotes contain how figures in the financial statements are realized, how certain accounts are achieved and the incidents surrounding them. Descriptions and further explanations are made in the financial statements using the footnotes.