Disclosures (financial statements)

At TEAM we start at the back of a set of financial statements such as an Annual Report and Accounts. Why? Because this is where you will find highly relevant, and arguably the most important information, the Disclosures. Commonly this section can run for several pages, if not a dozen.

Within Disclosures are explanations for any activities that have significantly impacted the company’s financial results, good or bad. They look like footnotes but can contain important notes on a company’s assets, liabilities, liens, defaults, changes in valuation treatment of inventories (stock) and investments.

The term used is “Materiality and Impact”. If a company changes accounting policy such as depreciation, or the application of GAAP, this is “material”. If an accounting error from a previous period report has been discovered, a note must be in the Disclosures. Insurance changes and any other noteworthy events or transactions will be detailed in Disclosures.

At TEAM we think these little notes are critical in trying to understand a company’s financial health. They are an integral part of the accounts or financial statements, and can also hint at prevailing standards of governance.

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