Hi.
Else here.
And in this video, we'll be exploring the notes
to the financial statements.
The notes to the financial statements
are not considered a financial statement per se.
But they are an important and integral part
of the financial statements.
This is true for public corporations, who
must use IFRS, and private corporations, who
choose to use IFRS.
In addition, private corporations
can choose to follow ASPE.
If they do, they produce a slightly different set
of financial statements.
Companies following ASPE are also
required to include notes to the financial statements.
In these videos, I'll be using a public corporation
to explain what the notes to the financial statements include.
But this video will apply to companies
following IFRS or ASPE.
In order to demonstrate the notes
to the financial statements, I've
decided to use Dollarama Inc.'s annual report for the year
ended February 2, 2014.
If you download the annual report,
you'll see that at the bottom of each of the four
major financial, statements, there
is the following statement.
The accompanying notes are an integral part
of these consolidated financial statements.
This is a warning to users.
A failure to read the notes to the financial statements
will result in incomplete knowledge of the company's
financial health.
The notes supplement the financial statements.
Without them, it's not possible to fully understand
the financial condition of the company.
The notes should include any information
that will improve the user's understanding
of the financial statements.
Although there are some choices as to what the notes should
include, there are three basic types
of notes that have to be included.
First is a statement of compliance, indicating
the use of either IFRS or ASPE.
Since Dollarama is a public corporation,
their compliance statement references the use of IFRS.
This note is called the basis of preparation note,
and it must be included in every financial statements,
whether using IFRS or ASPE.
Next is a summary of significant accounting policies and rules
used to prepare the financial statements.
Again, this is required, whether a company follows IFRS or ASPE.
This note will include such things
as the basis of measurement for specific financial assets
and liabilities, how property, plant, and equipment is valued,
plus many other items.
For Dollarama, the summary of significant accounting policies
goes on for nine pages.
This indicates the importance of this section of the notes
to the financial statements.
The third type of note disclosure
is the relevant information to aid a user's understanding
of individual line items reported
on the face of the four financial statements.
For instance, in Dollarama's notes,
note seven gives details of the property and equipment that
is listed under non-current assets
on the statement of financial position.
Each line item from the financial statements
that does have a note is cross-referenced to that note,
in order to help users locate the relevant information.
There are other notes that may also be included,
such as any disclosures that are required by specific standards
or notes about items that are not
listed on the statements themselves,
such as exposure to significant risks.
Although some notes are specifically required,
IFRS and ASPE have a more general requirement
that notes be provided for anything
that would allow a user to better understand the company's
financial health.
Let's check your understanding of the notes
to the financial statements.
On April 9, 2014, Dollarama announced a 14% increase
in their quarterly dividend.
This announcement was made after the February 2
financial statement date.
Where, if at all, would this information be reported?
Even though the increase in the dividend
was announced after the date of the financial statements,
it is a subsequent event that is important for the users
to know, in order to better understand the financial health
of Dollarama.
As such, it's not included in the face of any
of the financial statements, but it
must be included in the notes to the financial statements.
The purpose of the notes is clear.
Notes explain and expand on the information
provided on the face of the financial statements.
Companies are responsible for fully disclosing
all relevant information for decision making,
and the notes are a critical part of this responsibility.
The notes to the financial statements
include both qualitative and quantitative information,
whatever is required to improve users' understanding.
In fact, the notes include so much information
that they make up the majority of the financial report.
For instance, in Dollarama's annual report,
there are only four pages dedicated
to the financial statements themselves,
but there are 25 pages of notes.
Investors, lenders, and creditors
use the notes to increase their understanding of the content
of the financial statements, so they can better understand
the health of the company.
We have now completed our lectures
on the financial statements.
But likely, you, a student of accounting,
have an even more important question.
What are the steps you should use
to attack a financial statement question on a test or an exam?
And that is the subject of our next video.