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Why FASB requires the information found in footnotes

Although the basic financial statements for a company may take only four or five pages, some annual reports are now over 200 pages long. You are a staff member at FASB, and you have been asked to respond to a letter that contains the following statement:

"You guys need to cut out a lot of the required disclosures. Most footnotes are written in language that only accountants can understand, so companies are spending time and money preparing information that investors don't use."

Respond with at least two examples of how and why FASB requires the information found in footnotes.

Thanks for the help!

Solution Preview

The footnote requirements outlined by the FASB can be difficult to meet and may not always be used by all investors, but their presence is needed to insure that companies cannot simply bury information that makes them look weaker than the financials do. In defense of this statement, I offer the following two examples:

1) Covenant Transport-http://www.sec.gov/Archives/edgar/data/928658/000100888610000032/form10k.htm

The FASB requires disclosure of off balance sheet financing in the footnotes

Covenant Transport is a public transportation company involved in hauling freight all across the nation. One arrangement that they have ...

Solution Summary

Why FASB requires the information found in footnotes are examined.

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