- Home
- Bankruptcy and Bankruptcy Code
- Business Entities
- Departmental Operations
- Credit Practices
- Collection Practices
- Financial Analysis
- Accounting Concepts; Accounting Principles; GAAP; Generally Accepted Accounting Principles
- Accounts Receivable Forecasting
- Amortization of Assets
- Analysis By Sales
- Analysis by Trial Balance-Part I
- Analysis by Trial Balance-Part II
- Analysis by Trial Balance -Part III
- Assets
- Board of Directors' Audit Committees
- Audited Financial Statements; Financial Statement Analysis
- Auditor's Opinion Letter
- Understanding Balance Sheets
- Changing Independent Auditors
- Corporate Net Worth
- The Auditor's Opinion Letter
- Balance Sheet Ratios
- Financial Accounting Standards Board (FASB)
- Financial Problems; Red Flags; Signs of Financial Distress or Elevated Risk
- Financial Ratio Analysis
- Customer Financial Ratios; Ratio Analysis
- Adjustments to Financial Statement Made by the Credit Analyst
- GAAP (Generally Accepted Accounting Principles)
- The Going Concern Concept and the Auditor's Opinion Letter
- The Income Statement
- CPAs and Independent Auditors
- Industry Norms and Ratio Analysis
- Inventory Ratios
- Liabilities; Liability; Debt
- Limitations of Financial Statement Analysis
- Myths About Customer Financial Statement Analysis
- Net Worth
- Net Worth Ratios
- Notes to the Financial Statements, Explanatory Notes
- Reasons to Request Financial Statements
- Types of SEC Filings of Interest to Credit Analysts
- Securities and Exchange Commission
- Statement of Cash Flows
- Summarizing a Customer's Financial Condition
- Trend Analysis-Part I
- Trend Analysis - Part II
- Use and Abuse of Ratio Analysis
- Where-Got, Where-Gone Analysis
- Working Capital, Liquidity, Current Ratios, Ratio Analysis; Working Capital
- Working Capital Turnover
- Cash Flow, and the Cash Conversion Cycle
- Statement of Cash Flows; Accrual Basis vs. Cash Basis Accounting; Cash Basis of Accounting
- Comments about the Current Ratio
- Cash Application
- Contingent Liabilities
- How to Request Customer Financial Statements
- Financing Methods
- International Credit
- Laws and Regulations
- Payment Methods
- Performance Measures
- Security Instruments
- Career Management, and Job Change
- Credit Website Tools
- Upcoming Educational Events
- Credit and Collections Tools and Tips
- Tips on Creating Better Emails
- Generating Effective Credit Correspondence
- Exporting
- Accounting
Notes to the Financial Statements, Explanatory Notes
The purpose of including explanatory notes to financial statements is to provide adequate disclosure of important facts about a company that would not be obvious simply by reviewing the financial statements. Although notes to the financial statements, like the financial statements themselves, are representations made by the client company, when asked to offer an unqualified opinion about the accuracy of a company's financial statements. A CPA firm will normally assist their client in writing the notes to the financial statements. Disclosure requirements that have become a part of the basic audit include:
- The disclosure of significant accounting policies, such as inventory valuation methods,
- Disclosure of changes in accounting policies,
- Comments relating to any contingent liabilities and their potential impact on the company,
- Information about to operating leases,
- Information about off balance sheet financing,
- Comments relating to changes in demand for the company's goods and services, loss of key customers, and concentration of business among a limited number of customers,
- Information about pension liabilities, both funded and unfounded,
- Analysis relating to whether or not the company seems to be a "going concern."
From a creditor's perspective, it is possible that the most important information is in the notes, not the Balance Sheet or Income Statement or Statement of Cash Flows.
© 2009 by Michael C. Dennis. All Rights Reserved