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CFA Level I · CFA Level I Exam · Introduction to Financial Statement Analysis

Which of the following is the most appropriate description of the role of the notes to the financial statements in the analysis framework?

The notes give detail on accounting policies, estimates and assumptions that helps an analyst interpret the primary statements. They are an integral part of the audited financial statements, so they are neither optional unaudited extras nor a replacement for management commentary.

  1. AThey replace management commentary when it is unavailable
  2. BThey give detail on accounting policies, estimates and assumptions that supports interpreting the primary statementsCorrect
  3. CThey are optional supplementary material that auditors do not review

Explanation

Notes disclose policies, estimates, segment and other detail needed to interpret the primary statements. They are part of the audited financial statements, not optional and not a substitute for management commentary.

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