Question

Explain and discuss the importance and the role of the related notes to the financial statements included in a financial statement

Answer 1

Notes to the financial statements included in a financial statement are vital to give following information regarding financial statements:-

1. They explain the basis of the presentation and preparation of financial statements. For example, company has used going concerned and accrual principle.

2. Details of accounting policies adopted by management are elaborated. For example, the method of depreciation, method of inventory valuation, etc.

3. Description of the contingent liabilities. Contingent liabilities are those liabilities that depend upon future events. It is very important for the stakeholder to understand these contingent events.

4, Information about employee benefits like health insurance, retirement plans, medicals, vacations, etc are shared in notes.

5. Details of the consolidation of financial statements are shared with stakeholders. Further information regarding subsidiaries is also provided.

6. A description about the intangible assets are also included in notes. It specifies all the intangible assets owned by the company. including trademarks and patents.

7. Subsequent events are provided in notes to accounts that occur after the balances sheet date. It is important because the effect of them is not taken in the financial statements and stakeholders are curious to know about them,

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