Financial Statement Footnotes is the last section of a financial statement which is packed with information about the company. The footnotes provide a vivid description of the policies implemented by the accounts department of the company.
There are even other information regarding the company’s financial statements which cannot be disclosed in the statement itself. Precisely the footnotes are an extension of the information provided in the financial statement. But they provide quality information and might also provide genuine insights of the financial position of the company over a specific time period.
Contents of the Footnotes:
The contents of the footnotes can be divided into two sections. The first section deals with the accounting methods that the company implements to prepare the reports. The revenue recognition policy is a good example of the method. The second section contains elaborate explanations on the operational and financial reports.
The first section that is the accounting methods in a footnote identifies and elaborates on the major accounting policies of a business organization. This section is split into different areas like revenue and inventory and the policies pertaining to those different areas are discussed in this section of the footnotes along with the determination of their value.
The most important part of the company’s financial report is the revenue section. In the footnotes section an explanation on the revenue determination factors can be found out. The revenue recognition is also done here. The process of revenue determination is also shown here. A company has to book its sales and it is not very easy to find out when does a company book its sale. But even that method is cited in the footnotes.
This section of the footnotes provides a valuable insight to the investors regarding the financial structure of a company. A thorough analysis of the accounting method can reveal interesting facts about the company. These methods in comparison to the other companies in business reveals whether the company is trying to manipulate its financial records or if they are not competent enough in the business sector. The second important thing noticeable in the footnotes is any kind of alteration done in the accounts in a particular year that has borne effects on the bottom- line financial statements during the following year.
There is another section in the footnotes which is known as the ‘Disclosure and Financial Details’ section. In order to maintain a clean report all the other calculations are incorporated in the disclosure section. This section reveals information that are important for the investors. The information contained in the section encompasses topics like long-term debts, employee stock ownership details and stock options. The liabilities or risk factors involved in the company business are also included in the footnotes section.
Footnotes are expected to reveal information that are relevant and not made up falsely by the company. However, the company must be meticulous about concealing the secrets of the company which makes it competitive in the business arena.
Last Updated on : 26th June 2013