The notes to financial statements explain how the figures were measured and disclose what the figures cannot show: the accounting framework and policies, the terms of debt and any covenants, commitments to future spending, contingencies such as lawsuits, related-party transactions and events after year-end.
The notes that carry decisions
| Note | What to look for |
|---|---|
| Nature of operations and basis of presentation | The framework: ASPE, IFRS, not-for-profit standards, or (in a compilation) a basis such as cash or tax |
| Significant accounting policies | How revenue is recognised, how inventory is valued, amortization rates |
| Long-term debt | Interest rate, maturity, security given, and financial covenants such as a minimum current ratio |
| Commitments | Leases and contracts already signed for future years |
| Contingencies | Lawsuits, guarantees and claims not yet resolved |
| Related-party transactions | Dealings with owners, directors, family or connected companies, and on what terms |
| Subsequent events | Anything significant after year-end but before the statements were approved |
| Going concern | Any doubt about the organisation continuing to operate. Rare, and important when it appears |
In condo statements
The reserve fund continuity note, the commitments note and the subsequent events note are the three to read first. A levy voted after year-end often appears only there. Reading condo statements →
Covenants: the note lenders read first
A covenant is a promise in a loan agreement, such as keeping the current ratio above 1.25 or debt to equity below 2.0. Breaching one can let the lender demand repayment. The debt note usually says whether the company complied at year-end. If it did not, and the lender has not waived the breach, the debt may be reclassified as current. That change alone can transform the balance sheet.
Sources
- CPA Canada, ASPE general adoption: frequently asked questions. Read 25 October 2026.
- IAS Plus (Deloitte), summarising the CPA Canada Handbook, CSRS 4200, Compilation Engagements. Read 25 October 2026.