FINANCIAL DISCLOSURES
TEXT BOOK PAGES 62-72
Intermediate Accounting I
Spring 2019
2-1
Required Disclosures
2-2
Required Disclosure Notes
• Explain the data presented in the financial
statements themselves, or
– Provide information not directly related to any
specific elements in the financial statements.
2-3
Required Disclosure Notes
1. Summary of significant accounting policies
2. Descriptions of subsequent events
3. Noteworthy events and transactions
2-4
Example: Singapore Airlines
2-5
Required Disclosure Notes
2. Descriptions of subsequent events
• Subsequent events = Significant events
between the date of the financial statements
and the date the statement is issued
2-6
Required Disclosure Notes
2. subsequent events that should be
disclosed in a note
2-8
Post financial year-end events
2-9
Post financial year-end events
2-10
Post financial year-end events
2-12
Required Disclosure Notes
3. Noteworthy events and transactions
1) Related third-party transactions
Example: Connected lending
• An interest rate for lending to family members of a
founder-CEO is often significantly less than the
market interest rate for an independent third party
with similar credit risk.
• This lending transfers income (wealth) from the
company to the family members of the founder-
CEO, to the detriment of the interests of other
shareholders.
2-13
Required Disclosure Notes
3. Noteworthy events and transactions
1) Related third-party transactions
The following should be disclosed in a note:
• The nature of the relationship, a
description of the transaction, and any
dollar amounts involved, etc.
2-14
Required Disclosure Notes
3. Noteworthy events and transactions
2) Frauds and Errors
Misstatements in the financial statements
Frauds: intentional misstatements in a financial
statement to obtain an unjust or illegal advantage
Errors: unintentional misstatements in a financial
statement
2-15
Required Disclosure Notes
2-16
Management Reports (required
disclosure)
• Financial statements contain a comprehensive discussion and analysis
of the company’s operations by the management (termed as the
‘Management Discussion and Analysis / Operating and Financial
Overview / Management Report, and etc.)
• Let’s look at the CNOOC 2015 and find their Management Discussion
and Analysis (MD & A) section
2-17
Auditor’s Report (required
disclosure)
• Some of you will become public auditors
• Auditors audit the financial statements and give
assurance about their validity
2-19
Other Common Disclosure Notes
• Details about elements of financial
statements
– Earnings per share calculations
– Property, plant, and equipment
– Fair values of financial instruments
– Debts, leases, provisions, inventory, etc.
2-20