Accounting Equations
Financial statement elements (assets, liabilities, owners’ equity, revenue and expenses) are used as... Read More
Financial statements are accompanied by financial statement notes and supplementary information that help the users of financial statements to understand the information that is reported.
Importance of Financial Statement Notes and Supplementary Information
Notes to the financial statements provide important disclosures such as the basis of preparation, the reporting currency, and the accounting policies. Besides, the notes reveal the methods and estimates that have been used in the preparation of the financial statements. These revelations are particularly important when comparison is being made between two or more companies based on their financial statements.
The accounting standards (IFRS and US GAAP) afford companies a certain amount of flexibility when it comes to the reporting of certain transactions or activities. For example, two companies may report the expenses related to the purchase of the same item differently. Due to these differences in reporting choices that companies can make, it is often necessary for appropriate adjustments to be made to the figures reported in the financial statements before meaningful comparisons between companies’ financial data can be made.
Important disclosures on financial risks, contingencies, operating segments’ performances, and related party transactions can also assist analysts in predicting a company’s future performance and financial position.
Management Commentary
A management commentary or management’s discussion and analysis report (MD&A) is usually included as a part of public companies’ annual reports. In this section, a company’s management usually discusses matters of concern to the company such as the results of its operations, risk strategies employed, planned capital expenditure, and future outlook.
The MD&A is a useful starting point for understanding the financial statements and can also provide key insights into a company’s potential future performance.
Question
Information on a company’s results of operations, planned capital expenditure, and future outlook is usually found in which of the following?
- Auditor’s report.
- Management commentary.
- Notes to the financial statements.
Solution
The correct answer is B.
In a management commentary, a company’s management discusses matters of concern to the company such as the results of its operations, risk strategies employed, planned capital expenditure and future outlook.
A and C are incorrect because they typically do not report this sort of information.
Sergio Torrico
2021-07-23
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2021-07-17
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2021-07-16
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2021-06-28
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2021-06-22
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2021-05-10
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2021-03-24
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2021-03-18
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