Notes to Financial Statements

• Author: Vern Krishna
• Pages: 276-283

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Chapter 13: Notes to Financial

Statements

A. OVERVIEW

A complete set of nancial statements includes the Notes, which are

a form of accounting footnotes that disclose additional information

about the enterprise. e purpose of the Notes to the nancial state-

ments is to enhance our understanding of the statements and to pro-

vide context and some detail of accounting principles. e theory is

that the Notes should communicate relevant information in a read-

able form to assist the user in analyzing the statements. Unfortunately,

management sometimes uses the Notes to obfuscate, minimize, or

bury important information.

e Notes to the nancial statements are similar to footnotes in

a legal document. ey provide supplemental information to the

reader of the statements and disclose management choices in selecting

between alternative accounting principles and methodologies. Since

accounting involves choices between alternative methods of revealing

nancial information, management should select the method that is

most appropriate to its particular business and operations. e Notes

describe the important accounting policies that management adopts

and, where necessary, explain changes in such policies between suc-

cessive nancial statements.

e Notes contain information on aspects of business operations

that cannot conveniently be disclosed in the body of the nancial