The notes to the financial statements are the supporting disclosures that sit behind the headline numbers. The face of the income statement and balance sheet shows totals; the notes break those totals down and explain the accounting choices behind them.
What it means
A single line such as "operating expenses" or "current liabilities" can hide a lot of detail. The notes unpack it - listing the accounting policies applied, the make-up of each major balance, and any matters a reader needs to interpret the statements fairly. Under IFRS and IFRS for SMEs the notes are a required part of the statements, not an optional extra, and what must be disclosed is governed by materiality.
Where it fits in
Where payroll-related balances are significant - employee benefit obligations, provisions for leave, amounts owed to SARS - the notes are where their detail and basis of measurement are set out. For most small employers the disclosure is brief, but the accounting policies note still states how employment costs are recognised.
Key rules
- Explain and break down the figures on the face of the statements.
- A required part of the statements under IFRS and IFRS for SMEs.
- Include accounting policies, balance breakdowns and other material disclosures.
- What must be disclosed is driven by materiality.
