Q:

Are companies required to put a special note in the notes section of consolidated financial statements?

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Quick Answer

When it comes to financial reporting, businesses must disclose all the accounting details and the shareholder information for a company. Therefore, the inclusion of any special notes in the notes section of a report is necessary to support the reported data that is contained in the statements.

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Full Answer

Financial statements that are consolidated are designed primarily for the use and discernment of lenders and shareholders. Because the statements represent the income and expenses of a parent company and its subsidiaries, some of the data can be lost when it is aggregated. This occurs when the involved companies have different operating approaches.

Therefore, any special note that is added to the notes for a consolidated financial statement is helpful in clarifying a question that shareholders or others have about the performance and finances of the combined entities. Because many corporations are made up of various separate companies, they are required, in turn, to prepare consolidated statements.

A consolidated financial statement then presents the operational results and financial position of a controlling entity and it subsidiaries. Therefore, the report presents accounts as if the combined entities were a single organization. Any special notes in the notes section helps to make certain distinctions about the individual performance of the involved entities.

According to Investopedia, special footnotes can convey essential details on the methodologies used for accounting and other information that can affect an investor’s return in a company.

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