What is disclosed in the notes?

Syllabus F3a)

Explain the purpose of disclosure notes

Notes to the accounts

Notes to the accounts are prepared for the following three purposes:

1. present information about the basis of preparation of the financial statements and the specific accounting policies used;

2. disclose the information required by IFRSs that is not presented elsewhere in the financial statements; and

3. provide information that is not presented elsewhere in the financial statements, but is relevant to an understanding of any of them.

The Spanish Commercial Code states that the notes to the financial statements must complete, expand upon and discuss the contents of the other documents that make up the financial statements.

The minimum disclosure requirements are specified in the Revised Spanish Corporate Enterprises Law, in the Spanish National Chart of Accounts, and in the Standards for the Preparation of Consolidated Financial Statements, all of which indicate that the notes to the financial statements form an integral part of the financial statements.

In response to the relative importance that the principle of fair presentation has in accounting legislation, there is a large number of disclosures to be included in the notes to the financial statements. Among other disclosures, the notes to the separate financial statements must at least contain, in addition to the disclosures specifically provided for in the Commercial Code, the Revised Corporate Enterprises Law and the related implementing legislation, the following information:

• The measurement bases applied to the various items in the financial statements and the methods used for calculating valuation adjustments.
• The name, registered office and legal form of the companies of which the company is a general partner or in which it holds, directly or indirectly, an ownership interest of not less 20%, or in which, even if this percentage is lower, it exercises significant influence.
• The percentage of ownership of the share capital and the percentage of voting power held must be indicated, together with the amount of the equity in the investee’s last business year.
• Where there are several classes of shares, the number and par value of each class.
• The existence of “rights” bonds, convertible debentures and similar securities or rights, indicating the number of each and the scope of the rights that they confer.
• The amount of the company’s borrowings with a residual life of more than five years, and the amount of all the liabilities for which there is a security interest, indicating their form and nature. These disclosures must be shown separately for each liability item.
• The overall amount of the guarantee commitments to third parties, without prejudice to their recognition on the liability side of the balance sheet when it is probable that they will give rise to the effective settlement of an obligation.
• The pension obligations and those relating to group companies must be disclosed with due clarity and separation.
• The nature and business substance of the company’s agreements that are not included in the balance sheet and the financial impact thereof, provided that this information is relevant and necessary for determining the company’s financial position.
• The company’s significant transactions with related third parties, indicating the nature of the relatedness, the amount of the transactions and any other information concerning the transactions that might be required in order to determine the company’s financial position.
• The distribution of the company’s revenue by line of business and geographical market, to the extent that, from the standpoint of the organization of the sale of goods and of the rendering of services or her revenue of the company, these categories and markets differ significantly from each other. These disclosures may be omitted by companies that can prepare abridged income statements.
• Regarding revenues, the entity must identify the contracts with customers which give rise to their recognition; significant judgments and changes in such judgments made regarding such contracts and the assets recognized based on the costs in order to obtain or fulfill a contract.
• The average number of employees in the reporting period, broken down by category, and the period staff costs, distinguishing between wages and salaries and employee benefits, with separate disclosure of those covering pensions, when such amounts are not broken down in the income statement.
• The amount of the salaries, attendance fees and remuneration of all kinds earned during the year in all connections by senior executives and the members of the managing body, and the amount of the pension or life insurance premium payment obligations to the former and current members of the managing body and senior executives. Where the members of the managing body are legal persons, the aforementioned requirements refer to the natural persons representing them. These disclosures can be made on an overall basis by type of remuneration.
• The amount of the advances and loans to senior executives and members of the governing bodies, indicating the applicable interest rate, their essential features and such amounts as might have been repaid, together with the guarantee obligations assumed on their behalf. Where the members of the managing body are legal persons, the aforementioned requirements refer to the natural persons representing them.
• Companies which have issued securities that are publicly traded on a regulated market of any EU Member State and which, pursuant to current legislation, only publish individual financial statements, are obliged to disclose in the notes to the financial statements the main changes in equity and profit or loss that would have arisen had EU-IFRSs been applied, indicating the measurement bases used.
• A breakdown of the fees for financial audit and other services provided by the auditors, together with those paid to persons or entities related to the auditors.
• The group, if any, to which the company belongs and the Mercantile Registry at which the consolidated financial statements have been filed or, where applicable, the circumstances relieving the group from the obligation of presenting consolidated financial statements.
• When the company has the largest volume of assets from among the group of companies domiciled in Spain forming part of the same decision-making unit, because they are controlled in any way by one or several natural or legal persons not obliged to consolidate acting jointly, or because they are under single management due to agreements or clauses in the bylaws, a description of the companies must be given, indicating the reasons why they form part of the same decision-making unit, and the aggregate amount of the assets, liabilities, equity, revenue and profit or loss of those companies must be disclosed.

  The company with the largest volume of assets is considered to be that which at the date of its inclusion in the decision-making unit has the largest figure under the total assets heading in the balance sheet model.

• The notes to the financial statements must contain information on deferred payments to suppliers in commercial transactions and indicate the average payment period for payments to suppliers.

What does it mean to disclose in the notes?

Which should be disclosed by a company in its notes?

What is the purpose of disclosure notes?

What is disclosed in a balance statement?