Question

Identify and briefly explain five main reasons for having “notes to the financial statements”

Answer 1

Noted to Accounts or Notes to Financial Statements are an integral part of the information that an organisation want to deliver to it's stakeholders.As they Financial statement itself can not declare all the information notes to becomes an inseparable part of the Financial Statements.Moreover Notes are made to give proper adherence to full disclosure principle.

The following reasons will help us in understanding the importance of notes to accounts

1. Notes to Accounts provides an understanding of the company working it's policies, strategies , areas of operation and other relevant disclosures important for full transparency with the public.

2. With the help of Notes to accounts an organisation want to clear the method of accounting policiethey are using, inventory valuation policies, depreciation policies and other relevant assumption on the basis of which financial statements are prepared.

3. Notes to Accounts also provide the information regarding various recognize events which provides changes to be made in the statements of financial position.

4. Notes to Accounts also provide information regarding interview company transaction, dealing with their own subsidiaries, holding, associates companies and basis for this dealing. They also provide a detailed view of the various investments being made by the company and their fair valuation.

5. Notes to Accounts also provides a brief information about the future contingency or events that are not relevant today but may have a considerable impact in the future to be prepared for the worst.