Financial Statement Footnotes

Yael Fogel
Senior Manager, CFO Squad

Beginning, middle, and end. I go through this with my 8-year-old every week when we are doing her reading and writing homework. She is learning to pick up the sequence of events in stories. This activity got me thinking. Is there an order for our clients when they are telling their stories? The answer per ASC 235, Notes to Financial Statements is … kind of.

Most non-accountants would be surprised to hear that financial statements are not just spreadsheets and charts. Per US GAAP additional information in footnote disclosures is required as part of the financial statements and are an integral part of them. But is there an order to them?

ASC does recognize the need for flexibility in the format of the notes but encourages companies to disclose significant accounting policies in their first note. “Disclosure is preferred in a separate summary of significant accounting policies preceding the notes to financial statements (notes), or as the initial note, under the same or a similar title.” (ASC 235-10-50-6)

After this disclosure, we generally see that companies order their footnotes in the order of the topics in their financial statements. However, there are companies that instead choose to organize footnotes by either importance, or by type of activity – operating, financing or investing. Different orders could make notes more relevant to users but could make it difficult when trying to compare disclosures from multiple companies.

Whichever way you order your notes, it is important to ensure that they are clear to users of your financial statements. This can sometimes mean the addition of charts, graphs or tables to summarize information or cross-referencing notes to reduce redundancies.