Please, write a main discussion post about the below topic and respond to the two classmates discussions attached.Topic:
List and discuss the types of information commonly disclosed in the footnotes to corporate financial statements. Why are these important to investors and other stakeholders?
See attached file for more instructions. Thank you
Instructions for main post (Around 200 words) List and discuss the types of information commonly disclosed in the footnotes to corporate financial statements. Why are these important to investors and other stakeholders? In your response, provide at least one example. Include appropriate citations. (Citations only needed for main post) Instructions for the two classmate responses (around 150 words each) Please, respond to the below two classmate main posts. (Please, the responses need to be a discussion, not an evaluation. You can agree with them and add/comment about their response.) Classmate post #1: Ronnie Espigul (This is my brother, we have similar names) The notes to financial statement provide a wealth of useful information. The foot notes to the financial statement of the company provide a significant amount of additional information about the items of the financial statement of the company. It discloses the information which explains the items appearing in the financial statement that cannot be easily incorporated in the financial statement such as accounting policies, general information about the items in the financial statement. It is important for the investors and the stakeholders as they are having stake in the business and want to evaluate the items of the financial statements and foot notes are the one which will provide the detailed information to the investors and stakeholders regarding the accounting policies adopted and any other information which is not displayed in the financial statement of the company (Will Kenton). This will help the investors and stakeholder as footnotes will make the full disclosure which will help them for their decision making. References: Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2017).Financial accounting theory and analysis: Text and cases(12th ed.). Hoboken, NJ: Wiley Harold Averkamp. What are the elements of financial statements. Retrieved from https://www.accountingcoach.com/blog/elements-of-financial-statements [Accessed 03/06/ 2019]. Classmate post # 2: Maurice Naylon While the information provided by the four primary financial statements is necessaryto analyzing a company’s financial health and potential, they are not sufficient. Rather, clarifying and amplifying information must be included with these four these statements to provide a full financial picture for potential investors and creditors. Typically, this additional information comes in the form of footnotes to the financial statements, which “disclose information that explains, clarifies, or develops items appearing on the financial statements, which cannot easily be incorporated into the financial statements themselves” (Schroeder et al, 2017, p. 537). Some analysts have even gone so far as to call these footnotes absolutely criticalto understanding a company’s financial reporting. Specifically, “companies are required to give various explanations on taxes, debt structure, impending litigation, etc. Without these notes you have no idea what’s really going on in the company” (Dayan in Schroeder et al, 2017, p. 537). As Dayan’s quote illustrates, taxes, debt structure, and impending litigation represent three pieces of information included in the footnotes that are essential to investors and other potential stakeholders. Taxes, particularly deferred tax assets or liabilities, can significantly affect a company’s bottom line, but these effects will likely not be clearly explained on the balance sheet. Similarly, a company’s debt structure can greatly influence the potential profitability of a company. And, though post-Enron reform has made it more difficult to hide liabilities in special purpose entities, the balance sheet may not reflect the full amount of leverage a company possesses. As a result, potential stakeholders must look beyond the financial statements to the amplifying information in the footnotes to truly grasp the debt structure of a company. Lastly, Dayan mentions the importance of information on impending litigation. Contingency reporting is a notoriously subjective area of financial reporting, and the amount stated on the financial statements is likely going to be an estimate. Yet, the impact of a potential lawsuit can be catastrophic for a company, potentially causing bankruptcy. To thoroughly assess the risks associated with potential litigation and other contingencies, potential stakeholders must look to the footnotes, as the financial statements simply do not provide sufficient information. References Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2017). Financial accounting theory and analysis: Text and cases (12th ed.). Hoboken, NJ: Wiley.