19.2: Footnotes, Audit, and Analysis

Question 1

What are financial statement notes (footnotes)? What do footnotes discuss?

Answer 1

Financial statement notes include disclosures that provide further details about the information summarized in the financial statements.

Footnotes discuss:

1. The basis of presentation
2. Information on accounting assumptions, methods, and estimates
3. Business acquisitions/disposals, legal actions, employee benefit plans, contingencies and commitments, significant customers, sales to related parties, segments of the firms

Question 2

What is MD&A? What does the IFRS recommend to be discussed under MD&A?

Answer 2

IFRS recommends that the following is discussed:

• Nature of the business
• Management’s objectives
• Past company performance
• Performance measures used
• Company’s key relationships
• Company resources
• Company risk

Question 3

What does the SEC recommend to be included in the MD&A of public companies, asides from what’s already recommended by IFRS?

Answer 3

• Trends and significant events
• Uncertainties that affect firm liquidity
• Capital resources
• Results of operations
• Effects of inflation and changing prices
• Impact of contractual obligations like purchase commitments
• Accounting policies that require significant judgment by management
• Forward-looking expenditures and divestitures

Question 4

What is an audit?

Answer 4

An audit is an independent review of an entity’s financial statements, where the auditor is selected by the Board of Directors.

Question 5

What do auditors audit?

Answer 5

Internal controls and financial statements