Question

At the end of each fiscal year, companies with public securities are required to provide shareholders with an annual report. The annual report includes financial statements such as the balance sheet and additional disclosures, which may include items such as relating to business conditions, risk factors, legal proceedings, stock performance, and internal control procedures. Also, disclosure notes explain data presented in financial statements themselves or provide information not directly related to any specific item in the statements. Some examples are Pensions Long-term Debt, Income Taxes, Property Plant and Equipment, Leases, Investments, Employee Benefits Plan. It must include a summary of significant accounting policies, descriptions of subsequent events, and related third-party transactions. Specific Disclosure Notes summary of Significant Accounting Policies. It conveys valuable information about a company’s choices from among various alternative accounting methods. Subsequent Events occur after a company’s fiscal year-end but before the financial statements are issued. Examples: Issuance of debt or equity securities, Business combination or the sale of a business, Sale of assets, Event that sheds light on the outcome of a loss contingency.

Noteworthy Events and Transactions some transactions and events occur only occasionally but are potentially important to evaluating a company’s financial statements. In this category are Related-party transactions—Transactions between the company and owners, management, families of owners, etc. Errors and fraud—Misstatements that are unintentional (errors) or intentional (fraud). Illegal acts—Bribes, kickbacks, illegal contributions to political candidates, and other violations of the law. The more frequent of these is related-party transactions.

Review the Disclosure notes to determine which items you think should be included and which items of the disclosure can be omitted. Remember who looks at these notes and who they are intended to benefit.

Answer 1

In order to look into the disclosure notes to determine which items which can be included or excluded , let us have a deeper look into the disclosures -

1. General disclosure notes - shows incorporated and domiciled country , principal activities of the Company- hence ESSENTIAL

Example-

2. Revenue recognition - Group's turnover requires the equal value of the earned or due consideration
For the selling and distribution of products, net tax on goods and services, discounts and after selling within the Category has been abolished. -Essential

3.Group accounting -Subsidiaries ,Associated companies,Joint ventures- Essential

4.Property, Plant and Equipment Notes- Land and buildings, Other Property, Plant and Equipment,) Component of costs , and Depreciation methods- essential

5.Development properties - Not essential . Investment facilities may be created and/or designed for potential leasing.- Not essentail

6.Intangible assets- Goodwill, ) Trademark and licences ,- essential

7. Borrowing costs - Keeps changing , can be reported in later point

8.Impairment of assets-Essential

9.Derivative financial instruments and hedging activities - Fiar value hedge, Cash flow hedge,Net investment hedge-essential

10.Research costs - Essential

11.Deferred income taxes- DTA , DTL, - Essential part of reporting

12. Provisions for other liabilities and charges- Provisions for asset dismantlement, removal or restoration, warranty, restructuring and legal claims are recognized when the Group has a legal or constructive obligation as a result of past events- Not crucial

13.Currency translation- Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates,- Essential

The Effects of Changes in Foreign Exchange Rates, as per revised reporting guidelines

14. Related Party transactions -Related party relationships where control exists should be disclosed, irrespective of whether there have been transactions between the related parties.

It is particularly important to consider the nature of related party transactions. For example, services may be provided free of charge to a related party and a conclusion on whether the services provided are material can only be made by considering the nature of the transactions. If such items are deemed material, the provision of these free services should also be disclosed.

In order to prepare financial statements in accordance with the FRS, management must exercise its judgement in the implementation of the accounting policies of the Group. It would also entail the implementation of accounting calculations and assumptions that impact the quantities of assets and liabilities reported and the announcement at the time of the Record amounts of revenues and expenditures during the calendar year and financial statements. While these forecasts are based on the best understanding of current events and behavior by management, real outcomes can inevitably vary from those projections.