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Financial statement disclosures are the notes that sit behind the numbers: the accounting policies you chose, the terms of your debts, and anything that happened or could happen that the figures alone don’t show. A statement without notes is only half a statement, and the CRA treats them that way on a corporation’s return.
People tend to write the notes last and shortest. That’s backwards. A lender or a buyer often reads the notes before the totals.
What are disclosures in financial statements?
They’re the written explanations attached to the balance sheet, the income statement and the other statements. Numbers tell the reader what. Notes tell them how the number was reached and what isn’t in it.
The private enterprise accounting standard has a section titled Disclosure of Accounting Policies, which makes the policy note the one everybody has to write. It describes how you recognize revenue, how you value stock and how you write off equipment, so a reader can compare you with another business.
Beyond policies, what you disclose depends on what happened. A business with no debt and no owner dealings has short notes. One with a shareholder loan and a lawsuit has long ones.
What does the CRA ask about your notes?
A corporation’s T2 return carries Schedule 141, the Notes Checklist. It asks who prepared the statements and how much work they did, which means whether they were audited, reviewed or only compiled. It also asks whether the preparer had reservations, and it runs through note topics such as investments, liabilities, revaluations of assets and events after the year end.
The CRA’s GIFI guide says to complete the notes to the financial statements and Schedule 141 together. Those schedules can be left off only by a corporation that was inactive all year.
| Topic on the checklist | What you answer |
|---|---|
| Preparer and involvement | Who prepared the statements and at what level of assurance |
| Reservations | Whether the preparer qualified the report |
| Liabilities and investments | Whether notes describe them |
| Asset revaluations | Whether any were recorded |
| Events after year end | Whether any are disclosed |
That list comes from a public description of the form. The official version on canada.ca is a fillable PDF, so read the current one before you file.
How do you write a note that’s actually useful?
Put the fact first, then the terms. “Bank loan” tells a reader nothing. “A $15,000 bank loan at 9.99%, repayable over 48 months” does.
Take that loan. The personal loan calculator shows $380.37 a month for 48 months, $3,257.60 in interest and $18,257.60 paid back in total. A good note gives the rate, the term, the monthly payment and whether the loan is secured. It also gives the amount due in each of the next few years, because that’s what a reader wants before lending you more. A line of credit you can redraw needs a different note: the limit, the rate that floats with prime and the balance. The line of credit calculator shows how fast interest builds on a balance you carry.
Related party dealings need plain words. If a shareholder lent the company money, the note should say who, how much, at what interest and when it’s due. If there’s no interest and no repayment date, say that too.
Finally, events after year end. A large customer goes bankrupt in February and your statements are dated December. A reader would want to learn about that. Whether it counts as reportable is a judgement for your accountant, who knows the exact test in the standard.
What does a short set of notes look like?
Picture a small corporation with a December year end. Note 1 names the framework and the main policies. Note 2 describes the $15,000 loan above. Note 3 says a director lent the company $8,000, with no interest and no fixed repayment date. Note 4 mentions a three-year office lease. That’s four notes, maybe a page and a half, and a banker can see the whole picture in two minutes.
If yours runs longer, that’s fine. If yours runs to a single sentence, ask your accountant what’s missing.
What should you do before the notes are final?
Read them as a stranger would. Does each note make sense without having sat in your office all year? Check that every loan on the balance sheet has a note, every note ties back to a number, and the dates match. Then hand the draft to someone who didn’t help write it, a partner or a spouse who understands the business, and ask what’s unclear.
It takes an hour, and it often turns up the one thing everybody assumed somebody else had written down.
Who has to receive them?
Shareholders, for a start.
Under section 155 of the Canada Business Corporations Act, directors place annual financial statements before shareholders at the annual meeting, along with the auditor’s report if there is one. The prior-year comparison can be left out if the reason is stated in the statements or a note. That’s an actual disclosure, and it’s one many small companies forget about.
Corporations Canada’s policy page adds that shareholders of a non-distributing corporation can all agree to an exemption. A corporation that sells shares to the public has more to send, including a copy to the Director. Provincial corporations follow their own act, so check yours.
What gets left out that shouldn’t?
Commitments top the list. A five-year lease or a promise to buy equipment is something the reader should know about, even if no bill has arrived. Next come changes in how you account for something, such as a new depreciation method. Say what changed and what it did to the figures.
And then there’s the honest “we don’t know.” If a dispute’s outcome can’t be estimated, the note can say so. That beats silence.
One more link in the chain: the tax effect. Notes about income tax sit beside the estimate from the corporate tax calculator, which is a good sanity check on what your accountant records.
Keep the backup, too. The CRA wants records kept six years from the end of the last tax year they relate to.
Sources, and how we checked them
The notes requirements are from the Canada Revenue Agency‘s GIFI page and its Schedule 141 form, the shareholder rules are from section 155 of the Canada Business Corporations Act and the Corporations Canada policy page, and the record period is from CRA guide RC188. The loan figures come from our calculator, and the example loan is invented. The accounting standard itself is the final word on what each note must say.
Frequently asked questions
What are financial statement disclosures?
The notes attached to the statements. They describe accounting policies, debts, related party dealings and events that the figures alone don't show.
What is CRA Schedule 141?
The Notes Checklist on the T2 return. It asks who prepared the statements, at what level of assurance, and which note topics apply.
Do inactive corporations file the notes schedule?
The CRA says corporations inactive throughout the tax year are no longer required to attach Schedules 100, 125 and 141.
Must shareholders receive the statements?
Under section 155 of the CBCA, directors place annual statements before shareholders at the annual meeting. Non-distributing corporations can seek an exemption if the shareholders consent.
Can I leave the prior year out?
The CBCA allows it if you state the reason in the statements or in a note.
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