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IAI Actuarial Core Principles · Business Finance · Construction and features of company accounts and reports

Which statement best describes the purpose of notes to the financial statements?

Notes give accounting policies, breakdowns of figures and additional disclosures such as contingent liabilities that do not fit on the face of the primary statements. They are an integral part of the accounts and supplement, not replace, the balance sheet or hide items.

  1. AThey replace the need to present a balance sheet
  2. BThey provide accounting policies, breakdowns and additional disclosures that are not shown on the face of the primary statementsCorrect
  3. CThey allow management to omit unfavourable items from the primary statements
  4. DThey contain only the auditor's opinion
  5. They show forecasts of next year's profit as required by law

Explanation

Notes form an integral part of the financial statements. They set out the accounting policies and give detail, such as breakdowns of balances, contingent liabilities and related party transactions, supporting the primary statements. They do not replace them or hide items.

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