5.6: Techniques of Disclosure

Question 1

What are some common techniques for disclosing additional financial information?

Answer 1

Parenthetical Explanations

Notes

Cross-References and Contra
Items

Supporting Schedules

Question 2

What are parenthetical explanations in financial disclosures?

Answer 2

Parenthetical explanations provide additional information directly in the statement, typically in parentheses next to the related item, adding clarity and completeness.

Question 3

When are notes used instead of parenthetical explanations in financial statements?

Answer 3

Notes are used when the additional explanations are too lengthy or detailed to fit conveniently within the statement itself, allowing for more comprehensive disclosure without cluttering the main financial statement.

Question 4

What are cross-references and contra items in financial statements?

Answer 4

Cross-references link related items between different sections of the SFP (Statement of Financial Position), such as referencing bonds payable with cash deposited in a trust fund for their redemption.

Contra items are accounts that reduce related asset or liability accounts, like Accumulated Depreciation and Allowance for Expected Credit Losses.

Question 5

What is a contra account?

Answer 5

A contra account reduces the balance of a related account on the financial statements.

Examples include Accumulated Depreciation (which reduces asset value) and Allowance for Expected Credit Losses.

Question 6

What is an adjunct account?

Answer 6

An adjunct account increases an asset, liability, or equity account.

An example is Premium on Bonds Payable, which is added to the Bonds Payable account.

Question 7

What role do supporting schedules play in financial statements?

Answer 7

Supporting schedules provide detailed information about specific assets or liabilities that are only summarized in the SFP, offering more in-depth insights.

Question 8

Why is clear terminology important in financial disclosures?

Answer 8

Since financial statements are reviewed by various stakeholders (not just accountants), using clear, understandable terminology helps prevent misinterpretation and ensures accurate comprehension of the information.