Financial Statement Analysis – Introduction

Statement of Changes in Equity

This statement reports on the events and transactions that has caused the owners’ equity to change (increase and decrease). For example entity’s year end profit is added to owners’ equity and thus this is reported in SoCE. Other transactions include dividend, movement in reserves, issue of shares, repurchase or redemption of equity shares already in issue etc.

Notes to the financial statements / Disclosures

Explanatory notes, disclosures or simply notes to the accounts are part of complete set of financial statements. These notes help user understand how financial statements are prepared by providing additional details regarding policies selected with reasons and their effect, how certain figure in the financial statement is calculated for example depreciation expense, what accounting framework is followed and where entity has deviated from applicable rules and why etc.

Though explanatory notes are meant to explain the important figures and calculations in detail however, they are expected to cover details to certain extent and user is still required to be vigilant and have necessary knowledge of accounting process.

In some cases notes contains also such information that is part of any financial statements but was required to be brought to users’ attention because of its nature and importance. For example contingencies that do not amount to provision yet important enough to be disclosed.