Financial statements include all the aggregate data from a company’s business operations. Generally accepted accounting principles, GAAP, dictate the use of financial disclosures to report additional information to stakeholders. While companies can use all types of disclosures, a few are mandatory. Large companies or publicly held organizations are common users of financial statement disclosures.
Significant Accounting Policies
Companies must report all significant accounting policies to stakeholders. GAAP includes principles-based accounting guidelines. Therefore, companies can set their own policy for depreciation, inventories and revenue recognition. Companies must disclose their accounting policies for all these items. Other issues that need explanation are consolidating financial information from subsidiaries and cash equivalents held by a company.
Subsequent events are anything that will occur after a company closes its books for the year. For example, the sale of fixed assets, receipt of funds from loans or equity, business combination or other significant items fall in this category. While annual disclosures for subsequent events are most common, companies can also use these disclosures for quarterly reporting. This allows stakeholder to be aware of any major activity in which a company will engage.
Noteworthy Events or Transactions
Noteworthy events or transaction represent an activity that does not meet market standards. These disclosures include related-party transactions, errors, irregularities and illegal actions. Qualified audit opinions may also require disclosure. These statements inform stakeholders that a significant event will impact the company, whether positively or negatively. Auditors or regulators may also release information that relates to these financial disclosures.
Accounting changes represent any alternation or shift in a company’s accounting policies. Stakeholders need information on these changes because future accounting information will appear different. A short management statement is necessary to describe the change and why the company thinks it is necessary. Any benefits gained from the change should also be in this note. Common changes relate to depreciation, amortization, depletion, inventory valuation or other changes.