What accounting policies are disclosed in the notes accompanying a com

QUESTION

What accounting policies are disclosed in the notes accompanying a companys financial statements? Why is this disclosure important?
The accounting policies that are disclosed in the notes accompanying a companys financial statements includes: General Information The first thing that company usually want people to know is what they do or what they make. If a company changes its name during a financial year ,the same should be disclosed in the notes to financial statements. Significant policies- The next thing notes of a company may tell is what accounting method a company uses. In deciding whether a particular accounting policy should be disclosed management considers whether disclosure would influence the decision of the informed investor. Depreciation and amortization method- It means reduction in the value of asset over time or due to normal wear and tear. Such information should be provided in notes to financial statements. Valuation of inventory-Inventory can be valued at lower of cost or market as per GAAP guidelines. The same should be disclosed in notes to financial statements. Consolidated financial statements-Information not only about company but also its subsidiaries or sub units and acquisitions forms a part of notes to financial statement. Revenue recognition method- Company should disclose revenue recognition method for franchising and lease in its notes Contingent liabilities-In such liabilities,

er outflow of resources is not probable or the amount expected to be paid cannot be measured with sufficient reliability. Intangibles- These are those assets which cannot be seen that is they have no physical shape or form. For example patents, trademarks. Method of foreign currency translation are also disclosed in notes to financial statements. This disclosure is important due to following reasons: Information to external users- Financial statements are relied upon by the creditors, governments, investors for taking various decisions. They would be interested to know what method is employed by company among existing acceptable alternatives For comparison- Notes to financial statement clarifies accounting policies used by a company that enables to find out whether any method peculiar to industry is used by the company. Thus, facilitating comparison among the companies.

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