Footnotes
Footnotes explain the context behind financial statements and disclosures. While the main tables show totals and results, footnotes describe how those numbers were calculated and what assumptions were used.
They often cover accounting policies, estimates, and judgments made by management. This includes how revenue is recognized, how assets are valued, or how liabilities are measured.
Footnotes are not optional extras. They are a required part of SEC filings and are essential for understanding the full meaning of the reported data.
Why It Matters
Footnotes reveal information that can significantly change how financial results are interpreted. Ignoring them can lead to misunderstandings about risk, performance, or financial health.
What kind of information is typically disclosed in footnotes?
Footnotes commonly explain accounting methods, significant estimates, and policy choices. They may also disclose contingencies, legal exposures, debt terms, and off-balance-sheet arrangements. These details are often too complex for summary tables. Footnotes provide the necessary depth to understand the numbers correctly.
How do footnotes affect financial analysis?
Footnotes help analysts assess the quality and sustainability of reported results. They can reveal aggressive assumptions, unusual adjustments, or hidden risks. Changes in footnotes from year to year may signal shifts in strategy or financial pressure. Serious analysis always includes a close reading of footnotes.
Why do regulators and auditors focus heavily on footnotes?
Footnotes are where judgment and interpretation are most visible. Regulators review them to ensure disclosures are complete and not misleading. Auditors examine footnotes to confirm consistency with accounting standards. Problems in footnotes can lead to restatements or enforcement actions.
Real-World Example
A company reports strong profits, but its footnotes disclose that revenue recognition policies changed during the year. An analyst reviewing the footnotes realizes the growth may not be sustainable.
Footnotes and FinFeedAPI
FinFeedAPI’s SEC API provides access to filings that include detailed financial footnotes. This allows users to extract, review, and analyze explanatory disclosures alongside financial statements. Structured access supports deeper and more accurate financial analysis.