Notes to financial statements are an integral part of an entity’s financial statements.
Their main purpose is to provide explanations and additional details that complement and clarify the information presented in the main financial statements.
The notes help users of financial information better understand the economic and financial facts behind the figures that appear in the reports.
Key characteristics of notes to financial statements:
- Clarification and expansion of information: The notes explain the valuation method, accounting criteria adopted by the company, accounting policies applied, and other relevant circumstances that are not directly evident from the figures.
- Disclosure of contingencies: They may include contingencies or future commitments that could affect the company’s finances, such as lawsuits, guarantees, pending contracts, and other risks.
- Information on specific items: They explain details about items that, by their nature, require further clarification. For example, in the case of fixed assets, the notes specify their useful life, depreciation methods, among others.
- Relevant aspects of the entity: The notes may describe significant events that occurred after the accounting period’s close, changes in the composition of assets or liabilities, mergers, acquisitions, and others.
- Compliance with regulations: They are regulated by accounting standards (such as the International Financial Reporting Standards or the Mexican Financial Reporting Standards), which specify what type of information must be disclosed to ensure transparency and comparability.
Common examples of information included in the notes:
- Accounting policies: The accounting criteria followed by the company are explained, such as the accrual or cash basis, amortization methods, etc.
- Details of assets and liabilities: Explanation of the composition of balance sheet items, such as accounts receivable, inventories, intangible assets.
- Debt information: Details on loans, payment conditions, interest rates, and maturities.
- Deferred taxes: Breakdown of tax calculations, provisions, or tax credits.
- Related party transactions: Information on transactions with other entities or individuals that have a direct relationship with the company.
Conclusion
The notes are essential for properly assessing a company’s financial and operational situation, as they provide context to the figures presented in the financial statements.
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