In accounting and financial reporting, footnotes is the common name for the notes to financial statements, the explanatory information that accompanies the balance sheet, income statement, statement of cash flows and statement of changes in equity. The main entry describes what the notes contain, the standards behind them and how analysts read them.
Why they are called footnotes
The name dates from a time when explanations were printed at the foot of the statements they referred to. Today the notes usually run to many pages after the main statements in an annual report or a US Form 10-K, but analysts, auditors and investors still often call them footnotes. Standard-setters and the statements themselves normally use the formal wording, "notes".
The footnotes are an integral part of the financial statements and are covered by the auditor's opinion. They typically begin with a summary of significant accounting policies, then give detail on items such as revenue, inventory, property and equipment, debt, leases, income taxes, pensions and segment results. They also disclose matters that do not appear as numbers on the face of the statements, including contingent liabilities, commitments and events after the reporting date.
The requirement to provide this information follows from the full disclosure principle, under which anything that would affect a reader's judgement must be reported.