Question

b) Explain any FIVE (5) type of valuable information that may be found in the notes to financial statements.

Answer 1

The Following are various valuable items which can be obtained from notes to financial statements.

A) Significant Accounting Polices and Company Information :

In this note to financial statements generally the enity discloses the information regarding the business verticals the products they produce and also a detailed explianation of the various accounting standards they use where ever applicable.

B) Financial Instruments :

Financial instruments include Financial Assets and Liabilities, notes to financial statements give a clear presentation and disclosures of various types of financial instruments which include equity securities, bonds ,Commercial paper etc. Using this we an also calculate the liquidity position of the company and also the cash generating ability of the entity and also they way the entity is hedging the financial instruments

C) Contingencies and Commitments :

Contingent liabilities are significant items which donot have any presentation in the balance sheet or the profit or loss a/c. However they need to be presented in the notes to financial statements. This data helps us to find out significant commitments and contingencies of the entity , contingencies if become probable will become liabilities, when these are of significant amount then it may also affect the going concern of the entity

D) Segment Information :

Segment information can be of geographical segments or product wise, this is nothing but the primary and the secondary segments. Using segement information we can get a clear cut idea of how and in which product the company is making profits and in which products it is making losses the same can be analized geographically also that is country by country.

E) Controls and Procedures :

By analyzing this note we can check if the entity has prepoer internal control over financial reporting the way it is functioning this is also the statutory requirement as per the securities exchange Act,1934. Any changes in the internal controls and their limitations will also be disclosed