Apart from the financial statements, the foot notes in the annual reports disclose a great deal of information about the accounting policies and transactions. Many disclosures related to significant policies are also made under the section ‘Management Discussion and Analysis’.
The footnotes of a US GAAP or IFRS reporting company will discuss many important things such as its inventory accounting methods, accounting for long-lived assets, tax treatment, and its accounting treatment of leases.
If there is any change in an accounting standard or if the comoany is adopting a new standard the management will also discuss the impact of this change on the financial statements.
The analyst should carefully read these disclosures and use this information in their financial analysis.