Question

What are disclosure notes? Why are they important? A summary of the company's significant accounting policies is a required disclosure. Why is this disclosure important to external financial statement users?

Answer 1

The disclosure notes in accounting are included in the footnotes to the financial statements of an entity. These are important because notes reveal certain significant facts about the finances of entity which are not depicted elsewhere in the financial statements. These are required by the principle of full disclosure whose main purpose is to disclose any event or affair that had an impact on any of the financial statements. Any explanation that helps creditors and investors in decision making need to be included in the disclosure notes.

The disclosure of an entity's significant accounting policies is very important to external financial statement users in terms of their ability for making a comparison of the financial information across various entities. It is important for the financial analyst to get involved in assessment of the future cash flows of two retail companies to determine that one company uses LIFO and the other uses FIFO in recognitions of it's cost of goods sold and inventory