12.4. Making Sure Disclosure Is Adequate
The financial statements are the backbone of a financial report. In fact, a financial report is not deserving of the name if the three primary financial statements are not included. But a financial report is much more than just the financial statements; a financial report needs disclosures. Of course, the financial statements themselves provide disclosure of important financial information about the business. The term disclosures, however, usually refers to additional information provided in a financial report.
The CEO of a public corporation, the president of a private corporation, or the managing partner of a partnership has the primary responsibility to make sure that the financial statements have been prepared according to U.S. generally accepted accounting principles (GAAP) — or to international accounting standards, as the case may be — and that the financial report provides adequate disclosure. He or she works with the chief financial officer and controller of the business to make sure that the financial report meets the standard of adequate disclosure. (Many smaller businesses hire an independent CPA to advise them on their financial reports.)
For a quick survey of disclosures in financial reports, the following distinctions are helpful:
Footnotes provide additional information about the basic figures included in the financial statements. Virtually all financial statements need footnotes to provide additional information for several ...