Notes to the financial statement, also known as financial statements footnotes, are considered as an integral part of the financial statements. Financial statements provide information about an entity’s financial position at a particular date and its financial performance during an accounting period. Notes to the financial statements contains additional information for the users to understand the financial statements (For e.g., information about the accounting policies and significant assumption used by the management in preparation of financial statements etc.). Furthermore, notes also contain explanations, breakups and additional information about the assets, liabilities, equity, income and expenses reported in the financial statements.
In short, financial statements are read with the relevant notes, and these notes are critical for the users of financial statements in understanding and interpreting the financial statements.
Here is a summary of areas usually covered in the notes to the financial statements.
- Information about the entity, its business and operations.
- Information about the applicable financial reporting framework.
- Basis of preparation of financial statements including information about the functional and presentation currency.
- Significant accounting policies.
- Significant accounting estimates made by the management.
- Explanation, breakups and additional information about the assets, liabilities and equity.
- Explanation, breakups and additional information about the income and expenses.
- Information about the contingencies and commitments.
- Information about the related party relationships and related party transactions.