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What Are Footnotes? Pick up any financial report and you'll always find references to the footnotes of the financial statements. The footnotes describe in detail the practices and reporting policies of the company's accounting methods and disclose additional information that can't be shown in the statements themselves.

These notes will focus on how each account and line items in the statements are measured. So for example, an important footnote regards Inventory. A good footnote will identify how inventory is valued on the financial statements as well as how it would have been valued if another popular valuing method was used.

ASC 805 requires that US public business entities disclose supplemental 1 pro forma information for the results of operations for the current period and the comparable prior period.

Balance Sheet and Cash Flow GAAP also requires a cash flow statement, which acts as a record of cash as it enters and leaves the company. The cash flow statement is crucial because the income statement and balance sheet are constructed using the accrual basis of accounting, which largely ignores real cash flow.

The nature of footnotes varies since it depends on the accounting framework (US GAAP or IFRS) used to compile financial statements. Securities and Exchange Commission requires an extensive set of footnotes from public enterprises when they submit their financial statements.

IFRS requires financial statements to include a balance sheet, income statement, changes in equity, cash flow statement, and footnotes.

The exact nature of these footnotes varies, depending upon the accounting framework used to construct the financial statements (such as GAAP or IFRS). Footnotes are an integral part of the financial statements, so you must issue them to users along with the financial statements.