What Are Notes to the Financial Statements?

The notes to the financial statements are intended to help users of the financial statements to understand the contents of the basic financial statements. The makers of the financial statements provide explanations and explanations on the relevant content and items of the balance sheet, profit and loss statement, and cash flow statement. The contents of the notes to the financial statements are very important, mainly including: the main accounting treatment adopted by the enterprise; changes in the accounting treatment, the reasons for the change, and the impact on the financial position and operating performance; non-recurring items that occurred; Obvious conditions of the statement items; contingencies; events after the period; and other important information for understanding and analyzing financial statements. ^[1]

financial statement's footnote

Disclosure of notes to financial statements

The notes should disclose the relevant content in the following order:

(I) Basic situation of the enterprise

1. Business registration place, organization form and headquarters address.

2. The business nature and main business activities of the enterprise, such as the industry in which the enterprise is located, the main products or services provided, the nature of the customer, the sales strategy, and the nature of the regulatory environment.

3. The name of the parent company and the group's ultimate parent company.

4. The person who approved the financial report and the date on which the financial report was approved.

(II) Preparation basis of financial statements

(III) Statement of Complying with Accounting Standards for Business Enterprises

An enterprise shall declare that the prepared financial statements conform to the requirements of the enterprise accounting standards, and truly and completely reflect the relevant information of the enterprise's financial status, operating results and cash flow. This clarifies the institutional basis on which companies prepare financial statements.

If the financial statements prepared by the enterprise only partially comply with corporate accounting standards, such statements shall not be made in the notes.

(IV) Important accounting policies and accounting estimates

According to the financial statement reporting standards, enterprises should disclose the important accounting policies and accounting estimates adopted, while non-important accounting policies and accounting estimates may not be disclosed.

1. Explanation of important accounting policies

Due to the complexity and diversification of corporate economic operations, some economic operations can have multiple accounting methods, that is, there is more than one alternative accounting policy. For example, the valuation of inventories can include the FIFO method, weighted average method, and individual valuation method; the depreciation of fixed assets can include the average age method, the workload method, the declining balance method, and the total years method. When an economic business occurs, an enterprise must choose an accounting policy suitable for the characteristics of the enterprise from the allowed accounting methods. The enterprise chooses different accounting methods, which may greatly affect the financial status and operating results of the enterprise, and then compile different Financial statements. To help users understand the statements, it is necessary to disclose these accounting policies.

In particular, the following two items need to be disclosed when explaining accounting policies:

(1) The measurement basis of financial statement items. Accounting measurement attributes include historical cost, replacement cost, net realizable value, present value and fair value. This directly affects the analysis of statement users. This disclosure requirement makes it easy for users to understand how the items in the company's financial statements are measured. It is measured on a basis basis, such as whether inventory is measured at cost or net realisable value.

(2) The basis for determining accounting policies mainly refers to the judgments made by enterprises in the process of applying accounting policies that have the most influence on the amount of items recognized in the statements. For example, how does an enterprise determine whether the financial assets it holds are held-to-maturity investments rather than transactional investments; for another example, for an affiliated company that holds less than 50% of its shares, why does an enterprise determine that it has control and therefore incorporates Consolidation scope; for example, how does the company judge that all risks and rewards related to leased assets have been transferred to the company so as to meet the standards of financial leases; and what are the criteria for investment real estate, etc., these judgments are confirmed in the statements The amount of the project has a significant impact. Therefore, this disclosure requirement helps users understand the context in which companies choose and apply accounting policies and increase the comprehensibility of financial statements.

2. Explanation of important accounting estimates

The financial statement presentation standards emphasize the disclosure requirements for uncertain factors in accounting estimates. Enterprises should disclose the key assumptions and uncertain factors used in accounting estimates to determine the basis for these key assumptions and uncertain factors. As a result, significant adjustments were made to the book values of assets and liabilities.

In determining the carrying amounts of the assets and liabilities recognized in the statement, an enterprise sometimes needs to estimate the impact of uncertain future events on these assets and liabilities on the balance sheet date. For example, the calculation of the recoverable amount of fixed assets needs to be determined based on the higher of the net amount of the fair value minus the disposal costs and the present value of the estimated future cash flows. In calculating the present value of the estimated future cash flows of the assets, It is necessary to predict the future cash flow and choose an appropriate discount rate. The assumptions and basis used for the future cash flow forecast should be disclosed in the notes, why the selected discount rate is reasonable, etc. For another example, determine the basis for the best estimate when preparing for the ongoing litigation. The changes in these assumptions have a great impact on the determination of the amount of these assets and liabilities, and may make significant adjustments in the next fiscal year. Therefore, emphasizing this disclosure requirement helps improve the comprehensibility of the financial statements.

(V) Explanation of changes in accounting policies and accounting estimates and correction of errors

An enterprise shall disclose relevant information about changes in accounting policies and accounting estimates and correction of errors in accordance with the provisions of the "Enterprise Accounting Standards No. 28-Changes in Accounting Policies, Accounting Estimates and Error Corrections" and its application guidelines.

(VI) Explanation of important items in the report

An enterprise shall combine the description of words and figures, and disclose the composition of the important items of the statement or the current increase and decrease in a list as much as possible, and the total amount of the important items of the statement shall be linked with the amount of the items in the statement. In the order of disclosure, the order of the balance sheet, profit statement, cash flow statement, statement of changes in owner's equity and the order in which the items are listed should generally be followed.

(VII) Other important matters that need to be explained

This mainly includes contingent commitments, non-adjustment events after the balance sheet date, related party relationships and their transactions, etc. Specific disclosure requirements must follow the relevant standards, see the relevant sections.

Notes on financial statements

The notes to the accounting statements are supplementary to the accounting statements, and are mainly to further explain the content that cannot be included in the accounting statements or the contents that are not disclosed in detail, including changes to the basic accounting assumptions; changes in various items of the accounting statements (main items in the statements) Further notes), and contingent or non-adjustable items in the events after the balance sheet date: descriptions of related party relationships and transactions. However, some units have adopted the method of smearing Chencang. Some accounting policies have been changed in the accounting calculations, but they are not explained in the notes to the statements; or although they do not affect the amount of the statements, they have some operating activities and prospects for the unit The matters that have a big impact will not be explained, which will deceive the users of the report.

If, when inspecting an enterprise, the company's inventory valuation method at the beginning of the year and the mid-year are completely different, according to the national financial accounting system, this change must be disclosed in the notes to the statement, but the company also makes a disclosure to cover up Its illegal attempt to lower costs and increase profits falsely.

Another example is that if a listed company's statements have suffered significant economic losses in the future, the company is worried about affecting the company's performance, and did not disclose this change in the notes, thereby deceiving the users of the statement.