Notes to financial statements

A buyer meets the notes when a seller hands over year-end statements. BDC says the notes disclose the rules and assumptions made in preparing the statements and help interpret them. Read them with the numbers, and see how to verify a seller’s financial statements.

What the rules say

For a corporation under the Canada Business Corporations Act, section 71(7) of the Regulations says the annual financial statements shall contain a note stating whether they were prepared under Canadian GAAP or US GAAP; under s.71(1) and (2), Canadian GAAP applies, subject to US GAAP being allowed for an SEC registrant. Section 72(1) lists the statements they must include at least. A company under a provincial Act follows its own Act, which this entry does not cover. The CRA’s Schedule 141 page says to include the notes, and the auditor’s or accountant’s report, if they were prepared, so a corporation may have none. See annual financial statements.

What to ask

• Were notes prepared for each year, and can you see them all?
• Do the notes describe the accounting policies and the standard used?
• Where in the notes or the books are leases, loans, security given and other commitments recorded?