What is the purpose of the financial statement notes in GAAP?

• A. To provide detailed explanations and disclosures relating to the main financial statements
• B. To summarize the financial data
• C. To replace the need for an audit
• D. To determine the reliability of estimated profits

Answer: (A)

The purpose of the financial statement notes in GAAP is to provide detailed explanations and disclosures relating to the main financial statements. These notes serve several critical functions, including elaborating on accounting policies, assumptions, and methodologies used in the preparation of the financial statements. They also disclose additional information that is necessary for users to fully understand the company’s financial position and performance. This might include details about contingent liabilities, commitments, or segmented financial information that is not presented in the main body of the financial statements.

Incorporating these notes enhances the transparency and comprehensibility of financial reports, allowing stakeholders to make more informed decisions based on a complete view of the entity's financial health. This context is vital for users such as investors, creditors, and analysts, who require an in-depth understanding beyond the summarized figures presented in the primary financial statements.