- 4 Marks
Question
An Accounting Trainee has been given an assignment to prepare a complete set of financial statements of a public sector entity from data set provided by the Director of Finance. The Trainee prepared the financial statements to the admiration of the Director, except that no notes to the financial statements were provided. The Director made him aware that the notes to the financial statements are an essential component of the financial statements whether applying the cash basis of accounting or accrual basis of accounting as it enhances the usefulness of the financial reports to users. The Trainee has been directed to you to educate him further on the relevance of notes to the financial statements.
Required:
Write out your explanatory notes to the Trainee, the usefulness of notes to the financial statements, and the information that should be included in the notes to the financial statements of a public sector entity. (4 marks)
Answer
Notes to the financial statements provide more information than contained on the face of the financial statement and this enhances the understandability of the financial statements. (1 mark)
Notes to the accounts provide information on:
- Accounting policies applied to the preparation of the financial statement: Under the accounting policy, the preparer provides information on the accounting policies that have been applied in the preparation and presentation of the financial statements. Accounting policies usually cover the basis of accounting, recognition and measurement, depreciation, foreign exchange transactions, etc. In this section, a statement of compliance to standards and legislations are made. For example, a statement indicating the financial statements are prepared in compliance with IPSAS. (1 mark)
- Extracts or schedules: These notes provide the details of amounts shown on the face of the financial statement. It provides disaggregated information on values disclosed on the face of the financial statement. (1 mark)
- Additional explanations: These notes provide further information about events and transactions that are not captured on the face of the financial information but provide relevant information on the sustainability of the service potential of the entity. Under the cash basis, information that are reported on another basis but cannot be shown on the face of the financial statement is reported in the notes to the financial information. (1 mark)
- Tags: Financial Statements, IPSAS, Notes, Public Sector
- Level: Level 2
- Topic: General purpose financial reporting framework
- Series: NOV 2019
- Uploader: Sarah