Notes to The Financial Statements. An Overview

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Notes to the financial statements relates to the notes attached to the balance sheet and income statement that explains the details and changes from one year to another.

In principle they complement the balance sheet and income statement (for instance, corrections and explanations). They show detailed accounting information not normally explained by the balance sheet and income statement to provide an accurate picture.

They must be clear and as succinct as possible, the aim should be a classic indication of characteristics, principles and rules. For instance, notes on the balance sheet, notes on the income statement, and other information where necessary.

The purpose of the financial statement notes is a true and fair presentation of the assets, financial position and results of the company, particularly through complementary quantitative and qualitative information. Figures of the balance sheet and income statement are included.

Some items summarized in the balance sheet must be broken down in the notes for clarity. This is particularly true in relation to fixed assets. Value and other elements of the individual assets are also thoroughly covered.

Additional information relates to issues that need not be accounted for, but which are necessary for realistic assessment of the situation, for example, resolved financial obligations.

The international standards, IAS 1 requires companies to develop an annex to the accounts usually starting with a declaration of conformity, then the statement of assessments.

Evaluations should be made explicit: the cost of borrowing, long-term contracts, leases, expenses of research and development. Also a statement of assets and liabilities, deferred taxes and contingent liabilities must be provided.

Main components of the notes include accruals, leases, discounted bills, guarantees (collateral), assets and liabilities, details of the development costs as assets (including depreciation and book value), intangible assets and redemption premiums of bonds.

The impact of fiscal rules, that is, the deviation from tax and trade balance is explained in the appendix. Also pending transactions are disclosed in the notes if no other true and fair view of a corporation is mediated through financial statements.

The annex contains the names of all members of the board and the supervisory board, including information on all their salaries and stock options and the number of employed workers.

The tasks of the annex are set out in International Accounting Standard (IAS 1), in accordance with International Financial Reporting Standards (IFRS). The notes contain:

    – The accounting policies: Basic guidelines on the basics of creating financial statements and specific accounting and valuation principles.

    – All information which is required for the execution.

    – Information required for a fair presentation, that is a realistic representation of the company’s situation.

Formal requirements may not lead to an obfuscation of the realistic representation of the company’s situation. If in doubt it is given to the principle of substance over a single deviation from the rule.



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