Data in the Financial notes

Financial Notes are an Integral Part of the Financial Statements. It provide a complete and adequate discussion relating to the balance in various accounts.

Some examples of appropriate footnote data are:-

• Description of the company's policies -disclosure of the company's policies for depreciation, amortization, consolidation, foreign currency translation, EPS, etc.
• Inventory valuation method - how to determine COGS - LIFO, FIFO or Avg Cost.
• Asset impairment - details about impaired assets or disposed assets
• Investments - debt\equity securities classified as "trading", "available for sale" or "held to maturity"
• Income tax provision - breakdown by current and deferred taxes, accompanied by a reconcilation from the statutory income tax rate to the effective tax rate for the company.
• Change in accounting policy - descripe the change - due to new accounting rules.
• Non Recurring Items - e.g. pension plan terminations, acquisitions/dispositions of significant business units.
• Employment and Retirement programs - employment contracts, profit-sharing, pension and retirement plans and postreitrement and postemployment benefits other than pensions
• Stock options - granted to officers and employees
• Long-term leases - lease obligations on assets and facilities on a per-year basis for the next several years and total lease obligations over the remaining lease period.
• Long-term debt - issuance and maturities of long term debt.
• Contigent liabilities - potential or pending claims or lawsuits that might affect the company.
• Future contractual commitments - terms of contract in force that will affect future periods.
• Regulations / Restrictions - regulatory requirements and dividend or other restrictions.
• Off-balance sheet credit and market risks - Potential for loss over and above the amount recorded on the balance sheet's financial instruments, e.g. interest rate swaps, forward and futures contracts and options contracts (derrivatives).
• Fair value of financial instruments carried at costs - e.g. long term debt, off-balance-sheet instruments - swaps and options.
• Segment sales, operating profits and identifiable assets - information on each industry segment that accounts for more than 10% of a company's sales, operating profits and/or assets. Multinational corporations must also show sales and identifiable assets for each significant geographic area where sales or assets exceed 10% of the related consolidated amounts.

The footnote reveal many critical and fascinating sidelights to the financial story.

References:-

• How to Read a Financial Report, Merrill Lynch