Examples of Supplementary Information in Financial Statements

Financial statements provide a structured overview of a company’s financial health, but they often do not tell the whole story. To provide deeper context, companies include supplementary information alongside their primary reports. This information is not part of the core financial statements—the balance sheet, income statement, and statement of cash flows—but offers details and explanations that management believes are relevant for stakeholders. The purpose is to offer a more complete picture of an entity’s financial activities, illuminate factors driving performance, and explain underlying assumptions. By presenting this data, companies increase transparency to help investors and creditors make more informed decisions.

Defining Supplementary Information

Supplementary information (SI) is formally defined by standard-setting bodies like the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB). These organizations establish guidelines for what should accompany the basic financial statements. While part of financial reporting, SI is distinct from the core statements and is not required for those statements to be presented fairly under Generally Accepted Accounting Principles (GAAP).

It is important to distinguish SI from other disclosures in an annual report, such as a letter from the president, which is considered “Other Information” and not governed by accounting guidelines. In contrast, supplementary information has established standards for its measurement and presentation. This ensures a degree of consistency and reliability, even though it exists outside the core audited statements.

This information falls into two main categories. The first is Required Supplementary Information (RSI), which a standard-setter mandates for certain entities. The second is voluntary supplementary information, which management chooses to provide for greater clarity or additional analytical perspectives.

Examples of Required Supplementary Information

Certain supplementary information is mandated by accounting standard-setters for specific entities. This Required Supplementary Information (RSI) provides context for understanding the primary financial statements. The requirements ensure that entities in similar situations provide a consistent level of additional detail.

A common example for publicly traded companies is Management’s Discussion and Analysis (MD&A), specified by the Securities and Exchange Commission (SEC). The MD&A is a narrative from management’s perspective on the company’s financial condition and results of operations. It includes a discussion of known trends, events, or uncertainties that could impact performance, liquidity, and capital resources. Management must also analyze material changes in line items and explain the underlying drivers.

For governmental entities, an example of RSI is the budgetary comparison schedule. This schedule is required for the general fund and each major special revenue fund with a legally adopted budget. It presents the original budget, the final amended budget, and the actual results on the government’s budgetary basis. The schedule also shows the variance between the final budget and actual results to increase transparency.

Companies with defined benefit pension plans must also provide extensive supplementary information. Under FASB standards, entities must disclose schedules that reconcile the funded status of their pension plans. These disclosures include the projected benefit obligation, the fair value of plan assets, and the components of the net periodic benefit cost. The schedules also reveal the actuarial assumptions used, such as the discount rate and the expected rate of return on plan assets.

Examples of Voluntary Supplementary Information

Beyond mandated disclosures, many companies provide voluntary supplementary information to enhance transparency and offer deeper insights. This information is not required by a standard-setter but is presented by management to give users a more granular view of the company’s performance. These disclosures often highlight specific metrics or operational details.

A common form of voluntary disclosure is presenting detailed schedules that break down major line items from the financial statements. For example, a company might provide a schedule of operating expenses that itemizes costs like marketing and research. A manufacturing company could offer a detailed schedule of its Cost of Goods Sold, showing the costs of raw materials, direct labor, and overhead.

Parent companies with multiple subsidiaries often provide consolidating schedules. These show the individual financial data for each subsidiary and how those figures are combined to create the consolidated financial statements. The schedules include “elimination” entries, which remove intercompany transactions to avoid overstating revenue and expenses. This allows an analyst to assess the performance of individual business segments.

Many companies report non-GAAP financial measures to offer a different perspective on their performance. These metrics exclude or include amounts that are not treated similarly under GAAP, such as Adjusted EBITDA or Adjusted Net Income. These may remove non-recurring events like restructuring charges. When a company presents a non-GAAP measure, SEC regulations require it to also present the most comparable GAAP measure and provide a reconciliation between the two. The company must also explain why management believes the non-GAAP measure is useful.

Presentation and Auditor Association

Supplementary information can be presented within the same document as the audited financial statements or as a standalone document. When an auditor is engaged to report on this information, specific professional standards govern their work and how their conclusions are communicated.

An auditor’s responsibility for supplementary information differs from their responsibility for the basic financial statements. According to AICPA standards, the objective is to evaluate whether the information is fairly stated, in all material respects, “in relation to” the financial statements as a whole. This is not a separate audit but a set of limited procedures to ensure consistency with the underlying records.

These procedures involve comparing and reconciling the supplementary information to the company’s accounting records. The auditor will also inquire with management about the methods used to prepare the information and evaluate its form and content for compliance. If the auditor concludes the information is fairly stated, their report will include an opinion “in relation to” the financial statements, providing assurance without a full, separate audit.