Financial statements should be prepared by a qualified accounting professional on a consistent basis. Financial statements are comprised of financial data, including a balance sheet and income statement, as well as footnotes, disclosures, and other required supplementary information.
A balance sheet presents the financial condition of a company as a snapshot in time, revealing what the company owns (assets), what it owes (liabilities) and the remaining difference (stockholders’ equity). An income statement shows the revenues and expenses of a company over a specific period of time.
Footnotes are important to financial statement users because they provide additional information that can help users get a better understanding of a companys financial position and results. Footnotes should include details such as concentrations of business, major customers, material contractual obligations, related party transactions, capital structure, long-term debt obligations, contingent liabilities, stock options, and other items that may impact the financial position or results of operations.
In addition, footnotes should include disclosures related to accounting changes, corrections of errors, and non-recurring items such as litigation settlements and acquisitions. These disclosures are important because they provide users with an understanding of why certain numbers in the financial statements may differ from the prior period comparable figures and other accounting information.
It is also important for the financial statement user to be aware of any events that occurred after the end of the reporting period, such as acquisitions, divestitures, asset impairments, and off-balance sheet arrangements. Such events may have a significant impact on the financial condition or results of operations of the reporting period and future periods.
Finally, the financial statement footnotes should include a summary of significant accounting policies. Generally accepted accounting principles dictate that a company must maintain consistent accounting policies and disclose these policies in its financial statements. These policies should provide an understanding of the methods used by the company to prepare the financial statements, enabling users to identify any items that may be presented differently than expected or may have an impact on the company’s financial results or position.
In conclusion,t he footnotes to financial statement are an important component of a company’s financial statements, offering users valuable insights into the company’s financial condition and results of operations. They should include disclosures related to accounting changes, corrections of errors, non-recurring items and other relevant information. Additionally, a summary of significant accounting policies should be included to provide users with an understanding of the methods used by the company to prepare the financial statements.
