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A descriptive study of the notes to financial statements in the annual reports of 75 selected Canadian… Goh, Soo Siah 1965

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A DESCRIPTIVE STUDY OF THE NOTES TO FINANCIAL STATEMENTS IN THE ANNUAL REPORTS OF 75 SELECTED CANADIAN PUBLIC COMPANIES, 1 9 3 8 - 1 9 6 3 by Soo Siah Gob. B.A. (Hons.) University of Singapore, 1 9 6 3 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION i n the Faculty of Commerce and Business Administration We accept t h i s thesis as conforming to the required standards. THE UNIVERSITY OF BRITISH COLUMBIA A p r i l , 1 9 6 5 I n p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f t h e r e q u i r e m e n t s f o r an a d v a n c e d d e g r e e a t t h e U n i v e r s i t y o f B r i t i s h C o l u m b i a , I a g r e e t h a t t h e L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s t u d y * I f u r t h e r a g r e e t h a t p e r -m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may be g r a n t e d by t h e Head o f my D e p a r t m e n t o r by h i s r e p r e s e n t a t i v e s . I t i s u n d e r s t o o d t h a t , c o p y i n g o r p u b l i -c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l n o t be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n * B e p s o K t M B o x K x s f F a c u l t y o f Commerce and B u s i n e s s A d m i n i s t r a t i o n The U n i v e r s i t y o f B r i t i s h C o l u m b i a , V a n c o u v e r 8, C a n a d a D a t e A p r i l 1 5 , 1 9 6 5 . ABSTRACT Much has been d i s c u s s e d and w r i t t e n on the need f o r f u l l d i s c l o s u r e i n the Annual Report. V a r i o u s d e v i c e s are a v a i l a b l e to meet t h i s o b j e c t i v e . The use of notes to f i n a n c i a l statements i s one such method. The p o t e n t i a l i t y of notes as a v e h i c l e f o r a t t a i n -i n g f u l l d i s c l o s u r e has not been f u l l y r e c o g n i z e d nor e x p l o i t e d ; the l i t e r a t u r e on the use of notes as a d i s -c l o s u r e device, i s extremely l i m i t e d and sketchy. I t i s towards the c o l l e c t i o n of i n f o r m a t i o n on the content, format and use of notes t h a t t h i s study i s under-taken. An h i s t o r i c a l p e r s p e c t i v e i s p r o v i d e d by observ-i n g the changing form, content and use of notes over the years 1 9 3 8 through 1 9 6 3 . A s t r a t i f i e d random sample of 7 5 Canadian companies was drawn from the- 6 1 0 companies l i s t e d on the v a r i o u s Canadian Stock Exchanges as a t December 1 9 6 3 . The Annual Reports of these companies f o r f i v e s p e c i f i c years formed the b a s i c m a t e r i a l f o r the study. S t r a t i f i c a t i o n of the sample was along i n d u s t r i a l l i n e s i n an attempt to un-cover p r a c t i c e s unique to p a r t i c u l a r i n d u s t r i e s . The notes were a n a l y s e d by t h e i r i n f o r m a t i o n a l content and t h e i r format. 25% of the 8 0 2 f i n a n c i a l statements examined con-i i i t a i n e d f o o t n o t e s w h i l e 16% h a d n o t e s i n s e r t e d w i t h i n t h e f i n a n c i a l s t a t e m e n t s . N i n e t y - n i n e o f t h e 3 0 4 A n n u a l . R e p o r t s s t u d i e d c o n t a i n e d s t a t e m e n t s o f n o t e s . I n t h e a g g r e g a t e , 1 2 0 7 n o t e s w e r e a n a l y s e d . S i g n i f i c a n t t r e n d s r e v e a l e d b y t h e s t u d y i n c l u d e d t h e f o l l o w i n g : i n c r e a s i n g u s e o f n o t e s , t h e g r o w i n g p r a c t i c e o f f o o t n o t i n g t h e f i n a n c i a l s t a t e m e n t s a n d o f e n c l o s i n g t h e s t a t e m e n t o f n o t e s i n t h e A n n u a l R e p o r t s , i n c r e a s i n g l e n g t h o f n o t e s , d e c l i n e i n n o t e s w i t h d e s -c r i p t i v e t i t l e s , c a p t i o n s , o r f o r m a l h e a d i n g s a n d a l s o w i t h c r o s s r e f e r e n c e s a n d t h e g r o w i n g p r a c t i c e o f k e y i n g t h e n o t e s . E x a m i n a t i o n o f t h e c o n t e n t o f t h e n o t e s i n d i c a t e d t h a t t h e n o t e s w e r e l a r g e l y f i n a n c i a l , r e c u r r e n t a n d q u a n t i t a t i v e ; a n d p r e d o m i n a n t l y p e r t a i n e d t o t h e c u r r e n t f i s c a l p e r i o d . A n a l y s i s o f t h e f o r m a t o f t h e n o t e s s u g g e s t e d t h a t t y p i c a l l y t h e n o t e s w e r e n o t i n d e n t e d f r o m t h e l e f t m a r g i n , w e r e s h o r t , w e r e w i t h o u t d e s c r i p t i v e t i t l e s , w e r e n o t k e y e d , a n d d i d n o t c o n t a i n c r o s s r e f e r -e n c e s a n d w e r e p r e s e n t e d i n t h e f o r m o f a r u n n i n g d i s -c o u r s e . The s t u d y a l s o i n d i c a t e d t h a t t h e t y p e o f i n d u s t r y h a d some i n f l u e n c e o n t h e c o n t e n t o f t h e i n f o r m a t i o n p r o -v i d e d b y t h e n o t e s a s w e l l a s o n t h e f o r m a t o f t h e n o t e s . H o w e v e r , t h i s i n f l u e n c e was n o t s t r o n g . The b a s i c c o n c l u s i o n o f t h i s s t u d y i s t h a t s p e c i f i c Iv. improvements on the c u r r e n t use, content, and format of notes are needed. P r o p o s a l s f o r the proper use, j u d i c -i o u s l o c a t i o n , and a more syst e m a t i c p r e s e n t a t i o n of the notes are suggested. Seen i n the l i g h t of c u r r e n t p r a c t i c e s these r e -quirements may appear s t r i n g e n t . They are, however, necessary, i f notes are to be e f f e c t i v e l y used as a v e h i c l e f o r a t t a i n i n g f u l l d i s c l o s u r e . The p r e s e n t n e g l e c t of notes has to be r e p l a c e d by continuous and v i g o r o u s study of notes i n c o n j u n c t i o n w i t h the o t h e r d i s c l o s u r e d e v i c e s , i f f u l l d i s c l o s u r e i s to be achieved. The adop t i o n and implementation of the g u i d e l i n e s sug-gested above i s o n l y the f i r s t step towards a t t a i n i n g t h i s o b j e c t i v e . TABLE OF CONTENTS CHAPTER PAGE 1. INTRODUCTION 1 1. Statement of the Problem 2 2. Importance of Study 3 3. Review of Pronouncements of Major Accounting Bodies on the Use of Notes to F i n a n c i a l Statements 6 4-. Methodology 10 ( i ) The Sample 10 ( i i ) Scope and Coverage of Study. . . 13 ( i i i ) Response 14-( i v ) L i m i t a t i o n s of the Study . . . . 15 5. O r g a n i z a t i o n of Remainder of Study. . 17 I I . DEFINITIONS OF TERMS; CLASSIFICATIONS AND ENUMERATION OF NOTES 19 1. D e f i n i t i o n s of Terms Used 19 2. C l a s s i f i c a t i o n of Notes 22 ( i ) By Content of Notes 22 ( i i ) By Format of Notes 30 3. Enumeration of the Notes: An O v e r - a l l View 35 I I I . THE INFORMATIONAL CONTENT OF THE NOTES -A TREND ANALYSIS . . 62 IV. THE INFORMATIONAL CONTENT OF THE NOTES -AN INDUSTRY ANALYSIS 90 v i i CHAPTER PAGE V. THE FORMAT OF THE NOTES - A TREND ANALYSIS 109 VI. THE FORMAT OF THE NOTES - AN INDUSTRY ANALYSIS 133 VII. SUMMARY OF THE MAIN FINDINGS OF THE STUDY. 1^8 VIII. SOME OBSERVATIONS AND RECOMMENDATIONS. . . 179 BIBLIOGRAPHY 193 APPENDICES 197 LIST OF TABLES TABLE PAGE 2.1 Number of Companies C l a s s i f i e d by I n d u s t r i e s and Years, 1938-1963 36 2.2 Number of F i n a n c i a l Statements i n Annual Reports C l a s s i f i e d by I n d u s t r i e s and Years, 1938-1963 37 2.3 Average Number of F i n a n c i a l Statements Per Annual Report, C l a s s i f i e d by I n d u s t r i e s and Years, 1938-1963 38 2.4- F i n a n c i a l Statements C l a s s i f i e d by Types and Years, 1938-1963 4-0 2.5 F i n a n c i a l Statements C l a s s i f i e d by Types and I n d u s t r i e s . 4-1 2.6 F i n a n c i a l Statements C o n t a i n i n g I n t e g r a t e d Notes, C l a s s i f i e d by I n d u s t r i e s and Years, 1938-1963 ^3 2.7 F i n a n c i a l Statements w i t h Footnotes Appended, C l a s s i f i e d by I n d u s t r i e s and Years, 1938-1963 4-3 2.8 Number of Notes, C l a s s i f i e d by I n d u s t r i e s and Years, 1938-1963 4-6 2.9 Average Number of Notes Per Annual Report, C l a s s i f i e d by I n d u s t r i e s and Years, 1938-1963 4-7 2.10 Notes C l a s s i f i e d by P r i n c i p a l C a t e g o r i e s and Years, 1938-1963 46 i x TABLE PAGE 2.11 Notes C l a s s i f i e d by P r i n c i p a l Categories and I n d u s t r i e s 49 2.12 Number of Note Cases C l a s s i f i e d by I n d u s t r i e s and Years, 1938-1963 . . . . 50 2.13 Average Number of Note Cases Per Annual Report by I n d u s t r i e s and Years, 1938-1963. . . . . 52 2.14 Average Number of Note Cases Per Note by I n d u s t r i e s and Years, 1938-1963 53 2.15 Note Cases C l a s s i f i e d by P r i n c i p a l Categories of Notes and Years, 1938-1963 • . 54 2.16 Note Cases C l a s s i f i e d by P r i n c i p a l Categories of Notes and I n d u s t r i e s 55 3.1 Note Cases C l a s s i f i e d by P r i n c i p a l Categories and Subjects 61 3 . 2 Note Cases C l a s s i f i e d by P r i n c i p a l Categories and Topics 64 3 . 3 Note Cases C l a s s i f i e d by P r i n c i p a l Categories and P e r i o d i c R e l a t i o n s 65 3 . 4 Note Cases C l a s s i f i e d by P r i n c i p a l Categories and R e g u l a r i t y and Duration 66 3 . 5 Note Cases C l a s s i f i e d by P r i n c i p a l Categories and Q u a n t i t a t i v e Content 67 3 . 6 Note Cases C l a s s i f i e d by P r i n c i p a l C a t e g o ries, Major Subjects Classes and Topics 68 3.7 Note Cases C l a s s i f i e d by P r i n c i p a l C a t e g o ries, Major Subject Classes and P e r i o d i c R e l a t i o n s 69 X TABLE PAGE 3.8 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Major Subject Classes and Regularity and Duration . . . . . . . . . . . 70 3.9 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Major Subject Classes and Quantitative Content . . . . . . 71 3.10 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Topics and Periodic Relations. . . . . . . . 72 3.11 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Topics and Regularity and Duration 72 3.12 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Topics and Quantitative Content . 73 3.13 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Periodic Relations and Regularity and Duration 7k 3.lk- Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Periodic Relations and Quantitative Content. 7k 3.15 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Regularity and Duration and Quantitative Content 75 3.16 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Major Subject Classes and Years, I938-I963 76 3.17 Asset Note Cases, C l a s s i f i e d by P r i n c i p a l Note Categories, Types of Assets and Years, 1938-1963 78 x i TABLE PAGE, 3.18 Non-current L i a b i l i t y Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Types of L i a b i l i t i e s and Years, 1938-1963. .. . . . 79 3.19 Equity Note Cases C l a s s i f i e d by P r i n c i p a l Note Categories, Types of Equities and Years, 1938-1963 . . . . . . . . . . . . . . . . . . . 80 3.20 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Major Topics and Years, 1938-1963 82 3.21 F i n a n c i a l Note Cases C l a s s i f i e d by P r i n c i p a l Categories, F i n a n c i a l Topics and Years, 1938-1963 83 3.22 Technical Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Technical Topics and Years, 1938-1963 84-3.23 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Periodic Relations and Years, 1938-1963 . . . 86 3.24- Future Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Future Types and Years, 1938-1963 87 3.25 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Regularity and Duration and Years, 1938-1963 88 3.26 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Quantitative Content and Years, 1938-1963 . . 89 4-.1 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Major Subject Classes and Industries. . . . . 91 4-.2 SLsset Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Types of Assets and Industries. . 93 x i i TABLE PAGE 4-.3 Non-current L i a b i l i t y Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Types of L i a b i l i t i e s and Industries. . 95 4-.4- Equity Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Types of Equities and Industries. 97 4-. 5 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Major Topics and Industries 99 4-.6 F i n a n c i a l Note Cases C l a s s i f i e d by P r i n c i p a l Categories, F i n a n c i a l Types and Industries. . 101 4-.7 Technical Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Technical Topics and Industries . 103 4-.8 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Periodic Relations and Industries 105 4-.9 Future Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Future Types and Industries . . . 106 4-. 10 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Regularity and Duration and Industries. . . . 107a 4-. 11 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Quantitative Content and Industries 108 5.1 Notes C l a s s i f i e d by P r i n c i p a l Categories, Arrangement and Years, 1938-1963 110 5.2 Location of Integrated Notes and Footnotes by Years, 1938-1963. . . 112 5.3 Location of Statements of Notes, by Years, 1938-1963 113 x i i i TABLE PAGE 5 A Notes C l a s s i f i e d by P r i n c i p a l Categories, Indention from L e f t Margin of Page and Years, 1938-1963. . 115 5.5 Notes C l a s s i f i e d by P r i n c i p a l Categories, Relationship to Right Margin of Page and Years, 1938-1963. . 116 5.6 Notes C l a s s i f i e d by P r i n c i p a l Categories, S p a t i a l Separation and Years, 1938-I963 . . 118 5.7 Notes C l a s s i f i e d by Categories, Length of Notes and Years, 1938-1963. 119 5.8 Notes C l a s s i f i e d by P r i n c i p a l Categories, Typography and Years, 1938-1963 . . . . . . 121 5.9 Notes C l a s s i f i e d by P r i n c i p a l Categories, Use of Descriptive T i t l e s , Captions, or Formal Headings and Years, I938-I963 123 5.10 Notes C l a s s i f i e d by P r i n c i p a l Categories, Mechanics of Keying and Years, 1938-1963* • 125 5.11 Keyed Notes C l a s s i f i e d by P r i n c i p a l Categories, Style of Keying and Years, 1938-1963. ... . 127 5.12 Notes C l a s s i f i e d by P r i n c i p a l Categories, Use of Cross References and Years, I938-I963. . 128 5.13 Notes C l a s s i f i e d by P r i n c i p a l Categories, Form and Years, I938-I963 130 5.1*+ Notes C l a s s i f i e d by P r i n c i p a l Categories, the Extent of Numbering and Years, I938-I963. . 131 x i v TABLE PAGE 6.1 Notes C l a s s i f i e d by P r i n c i p a l Categories, Arrangement and Industries. . 134-6.2 Location of Integrated Notes and Footnotes by Industries 136 6.3 Location of Statements of Notes by Industries 138 6.4- Notes C l a s s i f i e d by P r i n c i p a l Categories, Indention from Left Margin of Page and Industries. 139 6.5 Notes C l a s s i f i e d by P r i n c i p a l Categories, Relationship to the Right Margin of Page and Industries 14-1 6.6 Notes C l a s s i f i e d by P r i n c i p a l Categories, S p a t i a l Separation and Industries . . . . . 14-3 6.7 Notes C l a s s i f i e d by P r i n c i p a l Categories, Length of Notes and Industries 145 6.8 Notes C l a s s i f i e d by P r i n c i p a l Categories, Typography and Industries 14-7 6.9 Notes C l a s s i f i e d by P r i n c i p a l Categories, Use of Descriptive T i t l e s , Captions or Formal Headings and Industries 14-9 6.10 Notes C l a s s i f i e d by P r i n c i p a l Categories, Mechanics of Keying and Industries 150 6.11 Keyed Notes C l a s s i f i e d by P r i n c i p a l Categories, Style of Keying and Industries. 152 XV TABLE PAGE 6.12 Notes C l a s s i f i e d by P r i n c i p a l Categories, Use of Cross References and Industries. . . 154-6.13 Notes C l a s s i f i e d by P r i n c i p a l Categories, Form and Industries 155 6.14- Notes C l a s s i f i e d by P r i n c i p a l Categories, the Extent of Numbering and Industries. . . 156 ABBREVIATIONS USED IN TABLES Integrated Notes Footnotes Separate Notes Total Notes CHAPTER I INTRODUCTION F u l l disclosure i n the f i n a n c i a l statements has been widely and sometimes heatedly urged upon corporate manage-ment. This means that the management of a public company i s under constant and increasing pressure to disclose a l l the material, s i g n i f i c a n t and relevant information pertaining to the f i n a n c i a l p o s i t i o n and r e s u l t s of operations of the company f o r the year to p a r t i e s - such as stockholders, c r e d i t o r s , the general public at large - which have or may have an i n t e r e s t and perhaps an equity i n the company. The objective of f u l l disclosure i s to make year-end statements useful and meaningful. The information presented should not be misleading or confusing. The f i n a n c i a l state-ments are to be neutral between the varied and sometimes c o n f l i c t i n g demands of the heterogeneous groups of users without favour to or bias f o r any s p e c i f i c group. The f i n a n c i a l statements attempt to summarise i n a few pages a l l the transactions and a c t i v i t i e s of the enter-p r i s e that occurred i n the l a s t twelve months. To be sure, any informational material, however i n s i g n i f i c a n t , can con-ceivably be of i n t e r e s t and use to some one of the groups. Inclusion of a l l informational material i s not however desirable nor p r a c t i c a l - not desirable because t h i s would c l u t t e r up the f i n a n c i a l statements and possibly lead to 2 confusion; not p r a c t i c a l because the data have to be pre-sented within the confines of a few pages. A process of s e l e c t i o n , summarization and condensation of information i s necessary to present what management con-siders to be the more s i g n i f i c a n t and relevant information i n the basic structure of the f i n a n c i a l statements. The les s e s s e n t i a l and less c r u c i a l information would have to be shown by other disclosure devices i n the Annual Report. 1 Broadly, these disclosure devices can be divided into two categories - p i c t o r i a l and n o n - p i c t o r i a l . The use of charts, diagrams, photographs represents the p i c t o r -i a l disclosure devices. Of greater significance are the n o n - p i c t o r i a l devices. Examples of these include the President's message, the Auditor's Report,., schedules and the use of notes to the f i n a n c i a l statements. By f a r the most important of the l a t t e r disclosure devices are notes to the f i n a n c i a l statements. 1. Statement of the Problem This thesis i s a d i s c r i p t i v e study of the format, con-tent and use of notes i n corporate annual reports of seventy-p f i v e selected Canadian public companies f o r the period 1938-1963. 1. See Yam P i n Tan, Trend Analysis of Supplementary  Information i n Annual Reports of Canadian Companies, 1938-1963. Unpublished Master's thesis, The University of B r i t -ish'Columbia, A p r i l 1965. 2. See Appendix A f o r l i s t of companies. 3 S p e c i f i c a l l y , t h i s i s an attempt to (1) trace the accounting use of notes to f i n a n c i a l statements from an early date to the present; (2) observe, indicate and record the range and v a r i e t i e s of format, contents and uses of notes; ( 3 ) examine and evaluate the format and content of the notes; (4-) r e l a t e the format, content and use of notes to s p e c i f i c industries and indicate, wherever possible, p r e v a i l i n g practices that are pecu-l i a r to any p a r t i c u l a r industry. Inter-industry comparisons w i l l be made throughout the study. (5) indicate and discuss trends that arise over the years under review. ( 6 ) suggest, i n the l i g h t of the study generally and on the basis of the better practices that are revealed by the study, the format of notes and the content and use thereof, that should be adopted i f f u l l disclosure i s to be made nearer to r e a l i z a t i o n . 2. Importance of Study Despite much discussion by accountants and some labored pronouncements by professional authoritative account-ing bodies on the need f o r f u l l d isclosure, i n practice past and current corporate reporting leaves much to be desired. An increasingly wider base of ownership has added the problem of structuring a report that w i l l meet the varied (and sometimes divergent) demands of the many heterogeneous groups using i t . The development of standards and p r i n c i -ples i s required which can be applied consistently to achieve f u l l d isclosure. Towards th i s end, a thorough study of notes to finan-c i a l statements i s an important r e q u i s i t e , because the use of notes i s the predominant disclosure device to present information that cannot or i s not shown i n the body of the f i n a n c i a l statements. Several reasons can be suggested f o r the view held that the use of notes i s the most important disclosure device. Notes to f i n a n c i a l statements are generally accepted as being an i n t e g r a l part of these statements. The Committee on Accounting and Auditing Research of the Can-adian I n s t i t u t e of Chartered Accountants i n i t s B u l l e t i n 3 No. lh wrote: The f i n a n c i a l statements should be read as a whole and notes appended thereto... are considered to have the same e f f e c t and significance as i f the explanation were placed against the items themselves ...the notes are a part of the f i n a n c i a l statements. Secondly, a cursory examination of some Annual Reports showed that sometimes the content of the notes to the finan-3. Issued August 1957, p. 2. This B u l l e t i n i s super-seded by B u l l e t i n 20 issued i n July 1964-. However, the view i n the l a t t e r B u l l e t i n confirms that contained i n the above quotation. On page 8, i t states: "Notes to f i n a n c i a l state-ments... have the same significance as i f the information or explanations were set f o r t h i n the body of the statements themselves. 11 c i a l statements duplicated the information contained i n the other disclosure devices. This means that less attention need be paid to these other disclosure devices i f the notes are well and systematically studied i n the f i r s t place. Thirdly, notes are used more frequently than the other d i s -closure devices. Fourthly, notes achieve a degree of f l e x -i b i l i t y i n use that i s not possible with the other d i s c l o s -ure devices. F i f t h , more important and s i g n i f i c a n t inform-ation i s contained i n the notes than i n a l l the other d i s -closure devices. Proper understanding of the figures pre-sented i n the f i n a n c i a l statements and of how these are arrived at, cannot be achieved without studying the notes. John H. Myers expressed t h i s point of view when he s a i d : ...My own procedure i n reading f i n a n c i a l statements i s to read the footnotes r i g h t a f t e r I read the auditor's opinion but before looking at the formal statements. Unfortunately, important as the notes are, writers i n the f i e l d of accounting have f a i l e d to recognize the s i g n i f -icant role that notes can and do play i n any move towards f u l l d isclosure. A thorough survey of the available l i t e r -ature revealed l i t t l e c r i t i c a l and s i g n i f i c a n t writing on the area. Yet, the notes can well be an e f f e c t i v e "plug i n the sink." This gross neglect of the notes provides loop-holes i n any move towards f u l l disclosure and may have given r i s e to a c e r t a i n degree of abuse of notes. It i s further contended that, i f the objective of 4-. John H. Myers, "Footnotes," The Accounting Review, Vol. 7 6 , A p r i l 1 9 5 9 , p. 3 8 1 . 6 f u l l disclosure i s to be achieved, the present neglect of notes must be replaced by research and study that w i l l develop rules, standards and p r i n c i p l e s governing the f o r -mat, content and use of the notes. A random examination of the notes found i n corporate reports revealed that the information contained therein i s very varied, without any unifying theme, and r e f l e c t s a high degree of discretionary action by management. There i s an even greater lack of uniformity i n the format of the notes. I t could be hoped to reduce such discretionary action to a more appropriate l e v e l by developing and pro-moting the better practices of the day as revealed by the study. 3. Review of Pronouncements of Major Accounting Bodies  on the Use of Notes to F i n a n c i a l Statements No major accounting body has subjected notes to a thorough study, nor has any yet seen the need to issue a s p e c i f i c b u l l e t i n dealing exclusively with the area. To date, the subject received passing mention i n discussions on disclosure. The exhortations towards f u l l disclosure can consequently be likened to an attempt to f i l l a leaking b o t t l e with water. Discussions on notes by these accounting bodies are not only extremely l i m i t e d , but are e n t i r e l y lopsided. The l i m i t e d discussions have always been on the content and use of the notes - what s p e c i f i c items should be shown by way of the notes. The format of the notes i s completely neglected. 7 However, the way a note i s presented i s just as important a consideration as i t s content. A note, whatever i t s con-tent, and however valuable t h i s i s , loses i t s effectiveness and f a l l s short of i t s purpose i f i t i s not read. Unless i t i s prominently presented, i t i s l i k e l y to be overlooked by the statement reader. I t follows that care has to be taken over the method of presentation of the notes. The format of notes i s completely ignored by the Committee of Accounting and Auditing Practices of the Can-adian Ins t i t u t e of Chartered Accountants i n i t s l a t e s t 5 B u l l e t i n on "Standards of Disclosure i n F i n a n c i a l State-ments. " Paragraphs 4-3 to 57 deal with "Notes to F i n a n c i a l State-ments." After pointing out that the notes to f i n a n c i a l state-ments are useful f o r understanding the f i n a n c i a l statements, and are just as s i g n i f i c a n t as the information contained i n the body of the statements, the B u l l e t i n ends the discussion on notes by l i s t i n g matters that should be disclosed by the notes unless otherwise shown i n the body of the f i n a n c i a l statements. The B u l l e t i n 5 issued i n July 1964-, superseded the August 1957 B u l l e t i n (No. 14-) on the same subject. I t i s 5. Canadian I n s t i t u t e of Chartered Accountants, Account-ing and Auditing Practices, B u l l e t i n No. 20, Standards of  Disclosure i n F i n a n c i a l Statements, July 1964-. 6. Four were added to the 1957 l i s t (see 7 below): assets pledged, equity i n non-consolidated subsidiary com-panies, pension plans, defaults and events subsequent to the Balance Sheet. 8 in t e r e s t i n g to observe that the discussion on notes i s sub-s t a n t i a l l y the same i n both B u l l e t i n s . The only s i g n i f i c a n t difference i n the 1964 B u l l e t i n i s the expanded l i s t of 7 matters that should be disclosed by way of notes. In other words, though seven years have elapsed since B u l l e t i n 14- was put out, the Committee does not f e e l the need to suggest standards or rules governing the proper use of notes and e s p e c i a l l y the form i n which these are to be presented. In spite of t h i s , i t s clamour f o r f u l l disclosure remains, i f anything louder and more important. The American and the B r i t i s h accounting bodies fare no better. Both have not f e l t the need to issue a s p e c i f i c b u l l e t i n on adequate or f u l l disclosure, l e t alone one on notes to f i n a n c i a l statements. . Q A thorough study of the B u l l e t i n s of the American In s t i t u t e of C e r t i f i e d Public Accountants i n force as at September 1, 1959 reveals that notes received only passing 9 mention i n a few of the B u l l e t i n s . 7. The i n i t i a l l i s t contains: changes i n p r i n c i p l e or pra c t i c e , contingent l i a b i l i t i e s , contractual obligations, long term leases, foreign exchange, bonds or shares of parent owned by subsidiaries and loans to directors or o f f i c e r s . 8. American I n s t i t u t e of C e r t i f i e d Public Accountants, Accounting Research and Terminology B u l l e t i n s (Final E d i t i o n ) , New York: A.I.CP.A., 1961. 9. See, f o r example, B u l l e t i n No. 14- e n t i t l e d Disclosure  of Long-Term Leases i n F i n a n c i a l Statements of Lessees. 9 The Ins t i t u t e of Chartered Accountants i n England and Wales has two B u l l e t i n s 1 0 that touch on f u l l disclosure. B u l l e t i n No. 17 - "Events Occurring after the Balance Sheet Date" - i s so l e l y concerned with the issues whether such events should or should not be disclosed. I t does not con-cern i t s e l f with the mechanics of disclosure, saying that "the method of communicating...and the decisions as to when i t should be done are matters f o r the directors.""1""'" In other words, important as f u l l disclosure i s , the directors are l e f t to exercise t h e i r d i s c r e t i o n i n the matter. Bulle-t i n N 18 - "Presentation of Balance Sheet and P r o f i t and Loss Account" - i s primarily concerned with what i s or should be disclosed. I t i s s i l e n t on how these are to be disclosed. Its l a s t three paragraphs (there are a t o t a l of 6l) are headed "Notes on the Accounts" but the term "Notes" i s used i n a wider sense (than i n this thesis) to include a l l supple-mentary information such as the Director's Report and other supporting schedules. B u l l e t i n 18 i s thus almost e n t i r e l y concerned with the nature of the accounts, such as of assets, l i a b i l i t i e s , to be presented i n the f i n a n c i a l state-ments, the grouping and c l a s s i f i c a t i o n of these and the appropriate terminology to be followed. To sum up, i t i s evident that there i s very l i t t l e organized discussion on f u l l disclosure i n the B u l l e t i n s 10. The Insti t u t e of Chartered Accountants i n England and Wales, Recommendations on Accounting P r i n c i p l e s . Moor-gate Place, London, E.C .2: December 1958. 11. Ibid.. B u l l e t i n N 17, p. 3, paragraph 15. 10 issued by the Canadian, American and B r i t i s h I n s t i t u t e s . In p a r t i c u l a r , these bodies are almost s i l e n t on the means of achieving f u l l disclosure. In passing, i t i s relevant to note that l e g a l require-ments on f u l l disclosure are n e g l i g i b l e and almost non-existent. For example, the B r i t i s h Columbia Companies Act (1948) requires that "Every Balance Sheet of a company s h a l l contain a summary of...such p a r t i c u l a r s as are necessary to disclose the nature of the l i a b i l i t i e s and the assets of the 12 13 company." The Dominion Act i s equally general and mini-mal i n i t s requirements on disclosure. I n a r t i c u l a t e on f u l l disclosure as the accounting bodies may be, they seem to go one step further than the law. 4. Methodology, The Sample. This study i s based on the Annual Reports of a repre-sentative sample of 75 Canadian i n d u s t r i a l and commercial companies for f i v e s p e c i f i c years over the period 1938-I963. The companies were selected as follows. A l i s t of a l l the i n d u s t r i a l and commercial companies which had shares l i s t e d f o r public subscription on the var-ious Canadian Stock Exchanges as at December 1963 Wts drawn up. This l i s t excluded companies whose shares were offered 12. Province of B r i t i s h Columbia, Companies Act. Chapter 67, paragraph l 6 l , section (1), p. 667. 13. Companies Act (1934), c. 33j s . l , paragraphs 116-119. 11 on an over-the-counter basis, subsidiaries of parent firms, firms with head o f f i c e s outside Canada ( p r i n c i p a l l y i n the United States, though sometimes England) and o i l s and mines. After the elimination, the l i s t stood at 610. The 610 companies were drawn from nineteen i n d u s t r i a l classes i n the F i n a n c i a l Post Survey of I n d u s t r i a l s , 1963. I t was f e l t that f o r t h i s survey, a smaller number of classes would be more appropriate l a r g e l y because of the r e l a t i v e l y small number of companies eventually analysed. Two c r i t e r i a were used i n r e c l a s s i f y i n g the nineteen i n d u s t r i a l classes. The f i r s t was the r e l a t i v e size of the i n d i v i d u a l i n d u s t r i e s , as indicated by the number of com-panies i n each industry. The second was the presence of common c h a r a c t e r i s t i c s or of a unifying theme within some of the industries that allowed the development of broader c l a s s -es. The following r e c l a s s i f i c a t i o n took place. The i r o n and s t e e l and public u t i l i t y categories re-mained the same as that used i n the F i n a n c i a l Post Survey of I n d u s t r i a l s . Foodstuffs, t e x t i l e s , beverages and m i l l i n g of grain were grouped into a consumption goods industry. The finance industry i n this study embraced banking, finance, t r u s t and loans. The pulp, lumber, p r i n t i n g and publishing industries were amalgamated into a f o r e s t and a l l i e d prod-ucts industry. A service industry was developed to incor-porate merchandising, transportation and advertising com-panies. The construction industry, chemicals and a l l i e d , property development, e l e c t r i c equipment, non-ferrous, and 12 o i l s and pipelines were grouped together to form a c a p i t a l goods industry. A l l other i n d u s t r i a l s were placed under a miscellaneous category. The development of eight broad i n d u s t r i a l classes resulted i n the following d i s t r i b u t i o n and s e l e c t i o n of the 610 companies. Industry Consumption Goods Cap i t a l Goods Iron & Steel Service Finance Public U t i l i t y Forest & A l l i e d Miscellaneous Total No. of Companies i n Industry 119 89 88 85 60 59 4 7 _ 6 l 610 No. of Companies Selected f o r Study 1 4 1 1 1 1 1 0 7 7 7 _8 71 There were two further considerations i n the s e l e c t i o n of the f i n a l sample. An intensive analysis, rather than an extensive study, was to be pursued and the sample was to be representative. I n i t i a l l y , a 20% sample was decided on but a f t e r a preliminary study, t h i s turned out to be too large. F i n -a l l y , the sample was reduced to 12% with the exception of the f o r e s t and a l l i e d products industry. In this industry, a 12% sample would have yielded f i v e companies and i t was 13 f e l t that t h i s did not give the degree of representativeness that was sought. Accordingly, two more companies were added and the sample was established at seventy-five companies. A process of random sampling, s t r a t i f i e d by industries, was used i n selecting the companies. The p a r t i c u l a r s of the 610 companies were recorded i n index cards. These were numbered and every eighth card within each industry was pu l l e d . For forest and a l l i e d , every s i x t h card was pulled. Scope and Coverage of Study As one of the objectives was to study trends i n the format and use of the notes over a recent period of time, the next problem was to decide on a suitable period f o r analysis. Three factors were thought to be of importance i n the choice of the period: the l i m i t a t i o n s of time and resources available f o r the analysis of the Reports, the l i k e l y a v a i l a -b i l i t y of more recent Reports and the significance of the s p e c i f i c years chosen f o r study. To make the study as current as was possible, 1963 became one end of the period f o r study. 1938 was ultimately selected as the f i r s t year of the period for a number of a d d i t i o n a l reasons. Besides being the l a t e s t pre-war year, i t has been suggested that notes to f i n a n c i a l statements were not used to any s i g n i f i c a n t extent long before l k t h i s date. Further, emphasis was to be placed on a f a i r l y 14-. John H. Myers i n an a r t i c l e e n t i t l e d "Footnotes" which appeared i n the Accounting Review, Vol. 76, A p r i l 1959 > pp. 381-388 wrote: "Thirty years ago footnotes i n annual reports were rare...," p. 381. 14-recent period because the move towards f u l l disclosure i s a current event. Three other s p e c i f i c years were chosen to span the period between 1938 and 1963. These were 1946, 1953 and 1958. Response Letters were mailed to the 75 selected companies re-questing Annual Reports f o r one or more of the f i v e s p e c i f i c years chosen, depending on the year of incorporation of the i n d i v i d u a l companies. In addition to these 75 companies, request l e t t e r s were also sent to another 175 companies which were also randomly selected on a s t r a t i f i e d basis. There were two reasons f o r this precaution. I t was f e l t that allowance had to be made for companies that might refuse to cooperate i n lending or giving t h e i r Annual Reports, p a r t i c u l a r l y the older issues. Others might wish to help but might not be able to do so because they did not have the reports. The f i n a l count of the re p l i e s j u s t i f i e d the need f o r the precaution. Replies to the f i r s t request were disappoint ing, and a second request and reminder l e t t e r was sent, urg-ing cooperation with the added assurance that should the company f e e l reluctant to cooperate because i t had only a f i l e copy of the requested report, on receipt of t h i s copy, i t would be promptly "Xeroxed" and returned. In t o t a l , 44- companies refused to reply and another 91 re p l i e d without the f u l l set of requested reports. Only 115 15 represented good r e p l i e s . The summary, below, presents the pattern of response. Nature of Replies No. of Companies % of Total Complete r e p l i e s 115 k6 Incomplete r e p l i e s 91 36 Tot a l replying 206 82 No r e p l i e s hh 18 Total no. of companies 250 100 It i s evident from the summary that the response was on the whole good. Only lQ% d i d not reply. It was unfor-tunate that a s i g n i f i c a n t l y high proportion of the companies could not provide the f u l l set of required Annual Reports, thus sharply reducing the percentage of useful r e p l i e s . For t h i s group of companies, the reason most generally advanced f o r the incomplete r e p l i e s was that they did not keep the e a r l i e r reports, though from time to time other equally v a l i d 15 reasons were given. A number of companies submitted re-ports that were either a year e a r l i e r or a year l a t e r than the requested ones, as a replacement f o r the l a t t e r . How-ever, since the s u b s t i t u t i o n of reports was considered un-desirable i n this study, such companies had to be excluded. Limitations of the Study With this pattern of response, not a l l the 75 companies 15. For example, one company r e p l i e d that i t s copies of past Annual Reports were destroyed i n a f i r e of the company's premises some time back. 16 that were i n i t i a l l y selected, furnished the required set of Reports. I t became necessary to replace the companies with-out the complete set of r e p l i e s by those that had. Although these were also selected on a s t r a t i f i e d random basis, a cer-t a i n degree of bias could be introduced into the study. I t i s possible that the companies that responded f u l l y , by d i s -playing this s p i r i t of public cooperation, were the more pro-gressive and public conscious ones. I t i s also l i k e l y that these would be the most a l e r t to the demands for f u l l d i s -closure. If this i s so, the present sample could be heavily biased towards the better companies and the t o t a l industry picture could be worse than that depicted by the r e s u l t s of the study. Throughout the study, a trend analysis i s stressed. However, because not a l l companies were incorporated before 1938, the number of companies i n each successively e a r l i e r year declined. This changing base could lead to an inade-quate or inaccurate trend analysis because the composition of companies analysed i n each year d i f f e r e d . I t i s recognized that as a company grows and as i t s operations become more complex, there i s the p o s s i b i l i t y that the number of notes required to explain the increasing-l y complex s i t u a t i o n has to be increased. The notes may also be used f o r d i f f e r e n t purposes. Interesting as the e f f e c t s of size of the companies or of the growth of these on the format and use of the notes may be, the study did not take up t h i s aspect. 17 Another l i m i t a t i o n imposed upon the r e s u l t s of t h i s study was the occasional need to depart from an objective c l a s s i f i c a t i o n of the notes to the exercise of personal judgment and d i s c r e t i o n . Fortunately, these instances were few and could not, to any appreciable extent, render the findings of the study less useful. A more serious l i m i t a t i o n was the i n a b i l i t y to obtain the complete set of requested reports f o r the 75 o r i g i n a l l y selected companies. This decreased to some extent, the representativeness of the sample. As a r e s u l t , i t was thought inappropriate to conduct a trend analysis of the format and use of the notes within each industry as was f i r s t planned. 5 . Organization of Remainder of Study. Chapter II begins by defining the terms used i n the study. The c l a s s i f i c a t i o n s used i n the study w i l l be given and explained. I t concludes with an enumeration and c l a s s i -f i c a t i o n of the notes so as to provide an o v e r - a l l view and to serve as an introduction to the detailed analyses that follow. Chapter III i s an intensive study of the informational content of the notes. It consists of two parts. The f i r s t i s a general consideration of the information contained i n the notes. The second i s a trend analysis of the informational content of the notes. Chapter IV studies the informational content of the notes by i n d u s t r i e s . The attempt i s to f i n d the p r e v a i l i n g type of information provided by the notes i n each industry. Chapters V and VI analyse the format of the notes. Chapter V i s a trend analysis while Chapter VI indicates the influence of industry on the presentation of the notes. Chapter VII sums up the p r i n c i p a l findings of the study. Some observations and recommendations on the proper use and presentation of notes to f i n a n c i a l statements w i l l be made i n Chapter VIII, the closing chapter. CHAPTER II DEFINITIONS OF TERMS; CLASSIFICATIONS AND ENUMERATION OF NOTES This chapter sets out the framework within which the analyses i n subsequent chapters can be followed. I t defines the terms that are commonly used i n this thesis. The notes w i l l be c l a s s i f i e d and analysed along c e r t a i n c h a r a c t e r i s t i c s . The chapter w i l l explain the use and development of these c l a s s i f i c a t i o n s . F i n a l l y , the chapter provides a general aggregative view of the notes. 1. Definitions of Terms Used Throughout th i s thesis, c e r t a i n terms w i l l a r i s e and whenever used w i l l conform with the following d e f i n i t i o n s : F i n a n c i a l Statements. The Committee on Auditing Procedure of the American I n s t i t u t e of C e r t i f i e d Public Accountants defines " f i n a n c i a l statements" as those which purport to show f i n a n c i a l p o s i t i o n and re s u l t s of operations. 1 By extension of t h i s d e f i n i t i o n , the following are c l a s s i f i e d as f i n a n c i a l statements: 1. The Balance Sheet 2. The Income Statement 3. Statement of Retained Earnings 4-. Statement of Income and Retained Earnings 1. American I n s t i t u t e of C e r t i f i e d Public Accountants, Statement on Auditing Procedure No. 28, "Special Reports," 1957> paragraph 5» 20 5. Source and Application of Funds 6. Contributed Surplus Statement 7. Statement of Surplus Note. A dictionary defines a note as "something to c a l l 2 attention; hence a b r i e f written statement." Others define i t as "a written communication," "a comment or explanation." Another equates a note to a "gloss," which i s de-fine d as "a b r i e f explanation (as i n the margin or between the l i n e s of a text) of a d i f f i c u l t or obscure word or ex-3 pression - an i n t e r l i n e a r t r a n s l a t i o n . " Here i t i s s i g -n i f i c a n t to observe that the note i s found within the text and located between the l i n e s . Such notes take on the c h a r a c t e r i s t i c s of annotations which are defined as "espec-i a l l y b r i e f notes, commonly marginal, and closely following 4-the t e x t . " More often, however, these written communications are located at the bottom or foot of the page, with appropriate references being made to them within the body of the page. These notes are commonly referred to as "footnotes. w Sometimes, too, a note can be "a printed comment or 5 reference set apart from the text." Such notes are located 2. James C. Fernald, Handbook of Synonyms, Antonyms and  Prepositions, New York: Funk & Wagnalls Co. Inc., p. 361. 3. Webster's Seventh New Collegiate Dictionary.Spring-f i e l d , Massachusetts: G. & C. Merriam Co., 1963? P - 356. 4-. Fernald, op. c i t . , p. 36l. 5. Webster's Seventh New Collegiate D1 ftt-lnnaryT op. c i t . . p. 576. 21 at the end of a chapter or book as, f o r example, i n the appendix. In reference to f i n a n c i a l statements, a b r i e f study of the notes contained therein, revealed that a l l three locations were used to present the notes. Some notes were inserted between f i n a n c i a l statement items, within the body of the f i n a n c i a l statements; others were appended to the f i n a n c i a l statements at the foot or bottom of the statements while there were s t i l l others which are shown i n a separate statement of notes to the f i n a n c i a l state-ments. 6 For the purpose of t h i s study, the terms "Integrated Notes," "Footnotes" and "Separate Notes" would be used to designate each of these three types of notes respectively. Often there was no great d i f f i c u l t y i n i d e n t i f y i n g a note to a f i n a n c i a l statement. Of the three types of notes, the integrated notes were probably the most d i f f i c u l t to i d e n t i f y , primarily because these were inserted between f i n a n c i a l statement items. However, the usual practice i n most Annual Reports was to d i f f e r e n t i a t e the notes from the f i n a n c i a l statement items by either extra spacing, or v a r i -ations i n type of p r i n t or by indenting the notes. There were some integrated notes which were not d i f f e r e n t i a t e d ; to i d e n t i f y these, judgment and d i s c r e t i o n were exercised. Note-Case. I t was found that a note sometimes contained 6 . See Appendix B, for i l l u s t r a t i o n s . 22 more than one item of information. For such notes, each item of information contained therein was c l a s s i f i e d as a note-case. The term "multi-cased note" was applied to a note containing more than one item of information. This d i s t i n c t i o n was necessary f o r the analysis of the informational content of the notes. For thi s purpose, the note could not be used as the unit of analysis because some notes contained more informational items than others. L o g i c a l l y , each item of information had to be analysed i n d i v i d u a l l y . At this stage, i t i s perhaps relevant to indicate that whereas the analysis of the informational content of the notes w i l l be based on the note-cases, the study of the format of the notes v / i l l be i n terms of the notes. Separate Statement. This term referred to each of the statements containing notes to the f i n a n c i a l statements and t y p i c a l l y l a b e l l e d , "Statements of Notes to F i n a n c i a l Statements." Instead of using the longer expression the abbreviated form "separate statement" was employed. 7,8 2. C l a s s i f i c a t i o n of Notes Q (a) By Content of Notes There existed a wide var i e t y of ways of c l a s s i f y i n g 7. See Appendix B f o r i l l u s t r a t i o n s . 8. The c l a s s i f i c a t i o n used i n the thesis i s developed from that used by Thomas G. Secoy i n "A Study of the Form,  Content and Use of Notes to F i n a n c i a l Statements i n Corpor-ate Annual Reports." Unpublished Phd. Dissertation, Univer-s i t y of I l l i n o i s , 1959. 9. S t r i c t l y speaking, we should be thinking i n terms of 23 the notes by th e i r informational content. The study used the more s i g n i f i c a n t c l a s s i f i c a t i o n s , as set out below. The information i n notes had been d i f f e r e n t l y c l a s s -i f i e d by the few writers on the subject. Myers, 1 0 f o r example, developed four classes of notes: (1) notes that contradict; (2) notes that replace; (3) notes that add, and (4-) notes that repeat. Bullock c l a s s i f i e d the notes into (1) f i n a n c i a l or simplifying notes; (2) accounting or i n t e r -pretative notes, and (3) other notes on extraneous matters . which may be e s s e n t i a l to the reader attempting to use the 12 statements. Forderhase talked of notes e s s e n t i a l to the understanding of the statements and notes f o r spe c i a l pur-poses . One reason why the notes had been c l a s s i f i e d i n so many ways was because the notes contain a very wide range of information. A second reason was that there had been too few studies made of notes f o r any p a r t i c u l a r c l a s s i f i -cation to achieve wide acceptance and recognition. A number of terms had been used to describe the notes by function. Sometimes, the notes could be described as explanatory; sometimes, c l a r i f y i n g and at other times, note-cases. For convenience, we speak of c l a s s i f y i n g the notes. In the analysis proper, we w i l l revert to the c l a s s i f y i n g of note-cases. 10. Myers, op. c i t . 11. Clayton, L..Bullock, "Notes i n Fi n a n c i a l Statement Preparation," Journal of Accountancy, Vol. 102, July 1956, pp. 12. F. B. Forderhase, "Notes to Fi n a n c i a l Statements," Journal of Accountancy, Vol. 99-100, October 1955? PP. 50-55. 24-i n t e r p r e t a t i v e . Notes had also been described as c r i t i -c a l , expository, narrative, descriptive, c l a s s i f y i n g , com-parative, h i s t o r i c a l , referencing, i d e n t i f y i n g , f a c t u a l , t e c h n i c a l , l e g a l , economic, f i n a n c i a l , non-financial, amplifying, complementary, supplementary, d i r e c t i v e , i d e n t i f y i n g and so on. The l i s t could be e a s i l y extended. This i s not necessary; the point f o r i l l u s t r a t i o n i s that there are many ways of c l a s s i f y i n g the notes by informa-t i o n a l content. For t h i s thesis, f i v e ways of c l a s s i f y i n g the i n f o r -mational content of the notes would be used. The notes would be c l a s s i f i e d by subjects, by topics, by periodic r e l a t i o n s of the notes to the f i n a n c i a l statements, by t h e i r duration and r e g u l a r i t y , and by t h e i r quantitative aspects. Subject C l a s s i f i c a t i o n The development of subject classes into which the notes could be c l a s s i f i e d was a d i f f i c u l t problem because of the extremely varied and numerous subjects over which the notes ranged. The approach taken was to use the finan-c i a l statement subjects c l a s s i f i c a t i o n . Regrouping of the le s s s i g n i f i c a n t and less frequently occurring subjects into broader subject classes became necessary. In the end, sixteen subject classes were developed. These were current assets; land and f i x e d assets; other assets; long-term debts; taxes; contingent l i a b i l i -2.5 t i e s and commitments; preferred stock; common stock; options, warrants and ri g h t s ; reserves, provisions and retained earn-ings; subsidiaries (including investments i n su b s i d i a r i e s ) ; income determination (such as expense or revenue items); referencing; i d e n t i f y i n g procedures, mechanisms and methods; general non-specific (or non-itemised) matters and a mis-cellaneous subject group. This miscellaneous subject group included notes r e l a -t i n g to accumulated depreciation, deferred charges, d i v i -dends, current l i a b i l i t i e s , accounts payable, notes payable, pension plans, contracts, c a p i t a l expenditures, leases, sinking fund payments, deferred c r e d i t s , shareholders' equity. Topic C l a s s i f i c a t i o n s The second approach was to c l a s s i f y the notes by topics. Here, the notes were c l a s s i f i e d by the i r nature to decide whether they were l a r g e l y d i r e c t i v e , technical or f i n a n c i a l . Sub-classes were further developed for each of these classes. D i r e c t i v e notes were notes which contained information (a) keying or connecting c e r t a i n notes to s p e c i f i c items i n the f i n a n c i a l statements (b) i d e n t i f y i n g s p e c i f i c items i n the f i n a n c i a l statements (c) r e f e r r i n g to other notes or s p e c i f i c items i n the f i n a n c i a l statements. Technical notes were notes containing information 26 concerning (a) accounting p o l i c i e s , p r i n c i p l e s , methods, procedures, changes therein and the effects of t h e i r changes. This sub-class was c a l l e d technical, procedural. (b) auditing procedures and techniques used by-independent auditors i n auditing the f i n a n -c i a l statement. This sub-class was termed technical,audit. (c) the existence and character of contractual and l e g a l events, r i g h t s and obligations. The term used f o r th i s sub-class was technical, l e g a l . (d) the existence, status and/or effects of business and other economic p o l i c i e s , practices and con-d i t i o n s . Included here were the notes that ex-plained technical cases. The term, technical, business and economic, was applied. A l l other notes were c l a s s i f i e d as f i n a n c i a l . These were notes containing information which was inherently part of the f i n a n c i a l p o s i t i o n and r e s u l t s of operations or which pertained d i r e c t l y to the f i n a n c i a l p o s i t i o n or re s u l t s of operations. Such notes were complementary i n nature. F i n a n c i a l notes were further broken down i n t o : (a) F i n a n c i a l elaborative - those f i n a n c i a l notes which contained a de t a i l e d l i s t i n g of amounts, types, sizes, rates, of f i n a n c i a l statement items. 27 F i n a n c i a l comparative - those f i n a n c i a l notes which presented data pertaining to a s p e c i f i c item for two or more years or other time periods such that a comparative analysis could be made. Fin a n c i a l event descriptive - those f i n a n c i a l notes which described a past or proposed fi n a n -c i a l event, transaction or occurrence and the effects of these. F i n a n c i a l others - these were the f i n a n c i a l notes which did not l o g i c a l l y f a l l into one of the above three sub-classes. Periodic Relations of Notes This and the following approach to c l a s s i f y i n g the notes used time as the point of reference. Here, the notes were c l a s s i f i e d as to when the events or conditions des-cribed i n the notes occurred. The information i n the notes was viewed as af f e c t i n g one of three f i s c a l periods -current, past and future. A f i n a n c i a l statement covered a period of time, nor-mally a year. This period covered was referred to as the current period. The time preceding this period was termed as past period whereas the time subsequent to t h i s current period was defined as the future period. A note was c l a s s i f i e d as a past period note i f i t contained information pertaining to an event, occurrence, (b) (d) or transaction which took place i n a period p r i o r to the current period or i f a past period's f i n a n c i a l p o s i t i o n and r e s u l t s of operations were most affected by that con-d i t i o n , procedure, method or desc r i p t i o n given by the information contained i n that note. A note was c l a s s i f i e d as a future period note i f the information i t contained pertained to an event, occur-rence or transaction which took place subsequent to the Balance Sheet date or i f the information i t contained represented a condition, procedure or description which most affected a period subsequent to the Balance Sheet date. Future note cases could be further c l a s s i f i e d according to t h e i r e f f e c t s on the f i n a n c i a l p o s i t i o n and re s u l t s of operations of the current period or of past periods. If a future note had retroactive effects on the current period or past periods, that note was c l a s s i f i e d as a future, retroactive note. If i t did not have any retroactive e f f e c t , the note was c l a s s i f i e d as a future, non-retroactive note. A l l other notes, not c l e a r l y i d e n t i f i e d as a past or future period note, were c l a s s i f i e d as current per-i o d notes. A note was, then, c l a s s i f i e d as current i f i t contained information pertaining to an event, s i t u a t i o n or transaction which took place i n the current period or which contained information describing a con-d i t i o n , method or procedure which most c l e a r l y affected the current period. In addition, a l l other notes, not c l e a r l y i d e n t i f i a b l e as past or future period notes, were 29 c l a s s i f i e d as current. Regularity of Motes The notes were also c l a s s i f i e d as to how long or how regular the events, conditions or transactions described i n the notes took place. On this basis, the notes were c l a s s -i f i e d into one of two groups - recurrent notes and non-recurrent notes. A recurrent note was one which contained information pertaining to an event, transaction or s i t u a t i o n which occurred frequently (described as more than once i n a period) or could reasonably be expected to occur frequently. A note was also considered recurrent i f i t contained i n -formation concerning a condition, method or procedure which had effects outlasting (defined as longer than a period) or could be expected to outlast the period i t pertained. A note which did not meet either of these two conditions was c l a s s i f i e d as non-recurrent. Quantitative Aspect of Notes, The f i f t h approach used to c l a s s i f y the notes was to consider whether the notes were l a r g e l y quantitative or not. If a note contained information that was l a r g e l y quantitative, i t was c l a s s i f i e d as a quantitative note. Otherwise, i t was considered non-quantitative. 30 Cb) By Format of Notes I t had been mentioned that the notes were c l a s s i f i e d by l o c a t i o n into three categories: integrated notes, foot-notes and separate notes. Apart from t h i s , there were eleven other s i g n i f i c a n t and important aspects of the format of notes to the finan-c i a l statements: (1) their length (2) t h e i r typography (3) t h e i r arrangement (4-) t h e i r p o s i t i o n (5) t h e i r l o c a t i o n (a d i f f e r e n t aspect from above) (6) t h e i r form (7) the use of des c r i p t i v e t i t l e s , captions and formal headings i n connec-t i o n with the notes (8) the use of keying i n the notes (9) the amount of cross referencing contained i n the notes (10) whether the notes were numbered or not, and (11) whether the notes contained subheadings or side captions which succinctly summarized the purpose and nature of each of the i n d i v i d u a l notes. The notes were c l a s s i f i e d by each of these a t t r i b u t e s . Length of Notes The length of the notes was measured by the number of printed l i n e s per note. Typography of Notes Typography of notes involved a comparison of the manner of p r i n t i n g of the notes with that of the f i n a n c i a l statement items. Three factors made up the typography 3 1 of the notes - the s i z e , style and weight of type. The notes could be printed bigger or smaller or of the same size as that of the f i n a n c i a l statement items. S i m i l a r l y , the st y l e of p r i n t of the notes could be made d i f f e r e n t from that of the f i n a n c i a l statement items, by the use of ca p i t a l s or i t a l i c s since f i n a n c i a l statement items were usually printed i n small l e t t e r s . F i n a l l y , the notes could be printed i n l i g h t e r or heavier types than that of the f i n a n c i a l statement items. A l t e r n a t i v e l y , they could be printed i n the same type. Arrangement Arrangement of the notes referred to whether the notes were presented i n two or more columns or whether they were l i n e a r l y presented ( i . e . running from the l e f t margin to the r i g h t margin of the page). These two classes were designated columnar presentation and l i n e a r presentation. P o s i t i o n P o s i t i o n of the notes involved a consideration of the placement of the notes within the pages they were found, i n r e l a t i o n to the l e f t margin and the r i g h t margin of the pages and to the s p a t i a l separation of the notes from the f i n a n c i a l statement items. For integrated notes, a l l three factors were r e l e -vant. These notes were c l a s s i f i e d as to whether they were s p a t i a l l y separated from the s p e c i f i c items which they 32 annotated. Secondly, c l a s s i f i c a t i o n was made on the basis of whether these notes began at the l e f t margin of the page as the f i n a n c i a l statement items generally did, or whether the notes were indented and thereby distinguished. F i n -a l l y , the notes were also c l a s s i f i e d as to whether they terminated at the money columns (which form the r i g h t margin of the page) or whether they terminated some d i s -tance from the money columns. For both footnotes and separate notes, the p o s i t i o n of the notes was of les s e r s i g n i f i c a n c e , but nevertheless, the same factors could be applied. Location Location took on a wider connotation than p o s i t i o n and considered the type of f i n a n c i a l statements i n which the integrated notes were inserted and to which the foot-notes were appended. As for the separate notes, l o c a t i o n r e f e r r e d to the place i n the Annual Report the statement of notes occupied, r e l a t i v e to the f i n a n c i a l statements. The separate notes would be c l a s s i f i e d as to whether there were any intervening pages of other informational material between the statement of notes and the l a s t f i n a n -c i a l statement. A t h i r d p o s s i b i l i t y would be where the statement of notes was placed some pages before the finan-c i a l statements to which i t s notes r e l a t e . 33 Form The form of notes involved t h e i r shape and structure as determined by the arrangement of the i r parts. The notes were c l a s s i f i e d as to whether they were presented i n a completely tabular form or i n the form of a running d i s -course ( i . e . narrative) or i n a mixed tabular-narrative form. Use of Descriptive T i t l e s , Captions and Formal Headings This referred to the practice i n some notes of attaching a descriptive t i t l e to a note and to the presen-ta t i o n of a group of notes under a caption or formal head-ing. Examples of these descriptive t i t l e s were "Note," "Note 1," "Note A." The captions read "Notes," "Notes (1), ( 2 ) , (3)," or "Notes (A), (B), (C).." "Notes to Finan-c i a l Statements" represented a formal heading. Keying Devices Keying referred to the practice of using devices such as a s t e r i s k s , daggers and descriptive wordings (e.g. See Note 1) to rel a t e the notes to s p e c i f i c f i n a n c i a l statement items. This f o r c i b l y drew to the statement reader's atten-t i o n the need to read the s p e c i f i c note i n r e l a t i o n to that item. Besides c l a s s i f y i n g the keyed notes by the mechanical devices used to key them, the keyed notes were also c l a s s i -f i e d according to the sty l e of keying. 3h Some notes were each keyed to only one financial-statement item; others were each keyed to two items while s t i l l others were each keyed to three or more f i n a n c i a l statement items. On the other hand, there were also instances when two notes were both keyed to the same finan-c i a l statement item. Sometimes, too, three or more notes were keyed to one f i n a n c i a l statement item. The terms, "single keying," "double keying," "multiple keying," "shared keying," and " j o i n t keying" were used to describe these situations respectively. Gross References i n Notes Some notes contained references to other notes, or to the f i n a n c i a l statements or to the Annual Reports or to other informational disclosures. The term "cross-reference" was used to designate such notes. The notes were according-l y c l a s s i f i e d as to whether they contained cross r e f e r -ences and i f so, to which informational disclosure devices. The Numbering of Notes The notes mere also c l a s s i f i e d as to whether they were numbered (or lettered) or not. The Use of Headings or Short T i t l e s i n Notes There were some notes which had short headings or t i t l e s attached or even side captions. This practice 35 summarized the content of the notes. Accordingly, the notes were c l a s s i f i e d as to whether they contained headings or not. As a conclusion to t h i s section on the c l a s s i f i c a t i o n of notes, i t i s i n order to point out that i t was not possible at a l l times to develop precise and mutually ex-clusive classes. While there was less d i f f i c u l t y i n meet-ing t h i s objective i n the c l a s s i f i c a t i o n along the d i f f e r -ent aspects of the format of the notes, greater d i f f i c u l t i e s arose i n try i n g to develop mutually exclusive classes along informational content. Interpretation and personal judg-ment set i n , introducing an element of ar b i t r a r i n e s s into the tabulation. 3. Enumeration of the Notes; An Over-All View  Number of Companies i n the Study Table 2.1 shows the number of companies i n the study, c l a s s i f i e d by years and industries. One of the outstanding features of the Table i s that, on a cumulative basis, t h r e e - f i f t h s of the companies were older than 1938; three-quarters were incorporated before 1948; f o u r - f i f t h s before 1953 and nine-tenths before 1958.1^ 13. It i s recognized that a t h e o r e t i c a l l y more correct approach would be to use the year when a p a r t i c u l a r company was f i r s t l i s t e d on the Stock Exchanges. However, a review of the l e t t e r s received from the companies indicated that only a few companies would be affected, so that the r e s u l t s would not have been s i g n i f i c a n t l y d i f f e r e n t had the l a t t e r approach been taken. 36 On an industry basis, public u t i l i t y represented the oldest industry, from the standpoint of the companies selected. I t could be observed that a l l the seven selected companies were incorporated before 1938. Consumption came second to public u t i l i t y . On the other hand, c a p i t a l seemed to have r e l a t i v e l y young companies. TABLE 2.1 Number of Companies C l a s s i f i e d by Industries and Years, 1938-1963 Industry 1?63 1958 1953 1946 .1938 Total Finance 7 7 6 6 5 31 Forest- & A l l i e d 7 7 6 6 5 31 Iron & Steel 11 11 10 9 8 4-9 C a p i t a l 11 8 5 3 2 29 Consumption 14- 14- 13 13 10 64-Public U t i l i t y 7 7 7 7 7 35 Service 10 8 8 7 5 38 Miscellaneous 8 6 5 4- 4- 27 Total No. of Companies 75 68 60 55 4-6 304-% of 1963 Total loo 91 80 73 61 Number of F i n a n c i a l Statements Table 2.2 shows that there was a t o t a l of 802 f i n a n -c i a l statements. S l i g h t l y more than a quarter of these were found i n the 1963 Annual Reports. Another 22$ pertained to 3 7 1 9 5 8 . 1 9 5 8 and 1 9 6 3 , taken together, had about half of the t o t a l number of f i n a n c i a l statements. On an industry basis, consumption had the larg e s t number of f i n a n c i a l statements, followed by i r o n and s t e e l . S l i g h t l y more than one i n every three f i n a n c i a l statements belonged to consumption. This was about three times as many f i n a n c i a l statements i n finance, which had the l e a s t . TABLE 2 . 2 Number of F i n a n c i a l Statements i n Annual Reports C l a s s i f i e d by Industries and Years, 1 9 3 8 - 1 9 6 3 Industry 1 9 6 3 . 1 9 5 8 1 9 5 1 1 9 4 8 1 9 3 8 Total Finance 1 5 14 1 1 1 1 1 0 6 1 Forest & A l l i e d 1 7 1 8 1 5 1 5 1 1 7 6 Iron & Steel 3 4 3 1 28 2 5 1 8 1 3 6 C a p i t a l 3 6 2 1 1 2 8 5 8 2 Consumption 3 9 3 7 3 4 3 3 2 7 1 7 0 Public U t i l i t y 2 2 2 0 1 9 1 9 2 0 1 0 0 Service 2 6 2 0 2 2 1 6 1 1 9 5 Miscellaneous 2 4 1 9 1 5 1 2 1 2 8 2 Total 2 1 3 1 8 0 1 5 6 1 3 9 114 8 0 2 % of Total No. of F i n a n c i a l Statements 2 7 2 2 2 0 1 7 14 1 0 0 Number of F i n a n c i a l Statements Per Annual Report To r e l a t e the' number of f i n a n c i a l statements to the number of Annual Reports, Table 2 . 3 i s presented. 3 8 TABLE 2 .3 Average Number of F i n a n c i a l Statements Per Annual Report, C l a s s i f i e d by Industries and Years, 1 9 3 8 - 1 9 6 3 Industry 1 9 6 3 1 9 5 8 1 9 5 3 1 9 4 3 1 9 3 8 f o r industry Finance 2 . 1 2.0 1 . 8 1 . 8 2.0 2.0 Forest & A l l i e d 2.4- 2 . 6 2 . 5 2 .5 2.2 2 .5 Iron & Steel 3 - 1 2 .8 2 .8 2 .8 2 .3 2 .8 Capital 3 - 3 2 . 6 2.4- 2.7 2 . 5 2 .8 Consumption 2 . 8 2.7 2 . 6 2 . 5 2.7 2.7 Public U t i l i t y 3 . 1 2 . 9 2.7 2.7 2 . 9 2 .9 Service 2 . 6 2 . 5 2 .8 2 . 3 2.2 2 . 5 Miscellaneous 3.0 3.2 3.0 3.0 3-0 3.0 Average for Year 2 .8 2.7 2.6 2-5 2 .5 2.6 For a l l years and a l l industries combined, there were 2.6 f i n a n c i a l statements i n every Annual Report. As of 1963, each Annual Report contained 2.8 f i n a n c i a l state-ments. Over the years under review, the Table shows a steady increase i n the number of f i n a n c i a l statements per Annual Report. The p r e v a i l i n g s i t u a t i o n showed c a p i t a l as the i n -dustry where the Annual Report contained the highest num-ber of f i n a n c i a l statements. On the other hand, finance had the l e a s t . Past years' figures indicated that only one industry - c a p i t a l - had a continuous increasing trend towards the presentation of more f i n a n c i a l statements i n 39 the Annual Report. However, a l l other i n d u s t r i e s , with the exception of miscellaneous, showed a long-run increase i n the number of f i n a n c i a l statements i n the Annual Report. In miscellaneous, the number of f i n a n c i a l statements i n the Annual Report was f a i r l y constant over the years under review. Types of F i n a n c i a l Statements The s t a t i s t i c s i n Table 2.4 indicate''.' that, the Balance Sheet apart, the Income Statement was enclosed i n the Annual Report more often than any other f i n a n c i a l state-ment. The Source and Application of Funds Statement was l e a s t enclosed. However, i t i s s i g n i f i c a n t to observe that the prac-t i c e of enclosing the Source and Application of Funds Statement had been adopted by a growing proportion of the companies over the years under review. Another statement that was increasingly being enclosed i n the Annual Report was the Statement of Retained Earnings. In contrast, there had been a movement away from the presentation of Surplus Statements i n Annual Reports. This p r a c t i c e , r e l a t i v e l y popular i n 1938, was dying out by 1963. This i s possibly the r e s u l t of changes i n terminol-ogy. I t i s i n t e r e s t i n g to observe from the Table that 90% of the companies revealed t h e i r r e s u l t s of operations, either i n a separate income or a combined income' and 4-0 TABLE 2.4-Fi n a n c i a l Statements C l a s s i f i e d by Types and Years, 1938-1963 (Figures i n brackets are percentages of t o t a l Annual Reports i n Year) Type Balance Sheet Income Statement Retained Earnings Income & Retained Earnings Source & App l i c a t i o n of Funds Surplus Statement 1963 1958 1953 1948 1938 Total 75(100) 68(100) 60(100) 55(100) 4-6(100) 304-ClOO) 4-9( 65) 4 M 65) 39( 65) 34-( 62) 3h( 7h) 200( 66) 4-7( 63) 36( 53) 27( 24-C 4-4-) 15( 33) l W 49) 20( 27) 17( 25) 16( 27) 16( 29) 6( 13) 75( 25) 15C 20) 6( 9) 3( 5) K 2) 1( 2) 26( 16) 7( 9) 9( 13) IK 18) 9( 16) 12( 26) 46( 9) retained earnings statement. Of significance to observe i s that the combined income and retained earnings statement remained constant during the decade 1953 to 1963. This confirmed the view held that the reason f o r the increase i n f i n a n c i a l statements was the recognition of the need f o r presenting more information and not as a consequence of separately showing hitherto combined statements. The s t a t i s t i c s i n Table 2 .5 suggest that of the indus-t r i e s the practice of enclosing an income statement i n the Annual Report was most accepted i n service. This was TABLE 2.5 F i n a n c i a l Statements C l a s s i f i e d by Types and Industries (Figures i n brackets are percentages of t o t a l Annual Reports i n Industry) Industry Balance Sheet Income Statement Statement of Retained Earnings Income & Retained Earnings Source & Application of Funds Surplus Statement Finance 31(100) 12(39) 8(26) 5(16) 0( 0) 5(16) Forest & A l l i e d 31(100) 16(52) 12(39) l4-(4-5) 3(10) 0( 0) Iron & Steel 4-9(10.0) 3^ (69) 23(4-7) 15(3D 9(18) 6( 6) C a p i t a l 29(100) 20(69) 12(4-1) 9(31) 5(17) 7(24-) Consumption 64-(100) 4-1 (64-) 4-3(67) 17(27) 2( 3) 3( 5) Public U t i l i t y 35(ioo) 27(77) 19(54-) 6(17) K 3) 12(34-) Service 38(ioo) 30(79) 15(4-0) 7(19) 3( 8) 2( 5) Miscellaneous 27(100) 20(66) 17(56) 2( 7) 3(H) 13(5+3) - r 4-2 c l o s e l y followed by public u t i l i t y . On the other hand, only about half of the Annual Reports of forest and a l l i e d had an income statement enclosed, while the practice was even le s s common i n finance. In comparison, forest and a l l i e d was the industry where the combined income and retained earnings statement was most frequently enclosed i n the Annual Report, among the i n d u s t r i e s . The statement of retained earnings was most f r e -quently shown i n the Annual Reports of consumption. F i n -ance presented t h i s statement l e a s t . In addition, none of i t s Annual Reports contained the Source and Application of Funds Statement. I t was i r o n and s t e e l that most f r e -quently enclosed t h i s statement. The surplus statement was most often given by the Annual Reports of miscellaneous. At the other end of the scale, none of the Annual Reports of fo r e s t and a l l i e d contained this statement. 14-Number of F i n a n c i a l Statements Containing Notes However, not a l l the f i n a n c i a l statements contained integrated notes or had footnotes appended. Table 2.6 shows that 1 2 8 f i n a n c i a l statements con-tained integrated notes. By Table 2.7? there were 240 f i n a n c i a l statements which had footnotes appended. 14-. This section only considers the integrated notes and the footnotes. M-3 TABLE 2.6 F i n a n c i a l Statements Containing Integrated Notes, C l a s s i f i e d by Industries and Years, 1938-1963 Industry 1963 1958 1953 19^8 1938 Total Finance 3 3 2 2 1 11 Forest & A l l i e d 1 1 2 2 3 9 Iron & Steel 2 2 7 9 7 27 C a p i t a l 5 4- 2 2 1 14-Consumption 3 5 8 6 6 28 Public U t i l i t y 3 2 3 4- 4- 16 Service 0 2 3 3 3 11 Miscellaneous 3 2 2 2 3 12 Total 20 21 29 30 28 128 TABLE 2.7 F i n a n c i a l Statements with Footnotes Appended, C l a s s i f i e d by Industries and Years, 1938-1963 Industry 1963 1958 1951 1946 1938 Total Finance 4- 3 2 2 1 12 Forest & A l l i e d 9 8 2 1 2 22 Iron & Steel 14- 10 15 7 5 51 Capital 7 4- 1 3 0 15 Consumption 13 10 7 9 6 k5 Public U t i l i t y 9 8 9 6 5 37 Service 12 6 7 3 3 31 Miscellaneous 9 4- 4- 5 5 27 Total 77 53 k? 36 27 24-0 4-4-The summary below relates the number of f i n a n c i a l statements with integrated notes and footnotes to the t o t a l number of f i n a n c i a l statements. Ratio of number % of F i n a n c i a l Statements i n of F i n a n c i a l Respective Year Statements with Footnotes to (a) Containing (b) Have Footnotes Number with Year Integrated Notes Attached Integrated Notes 1963 9-4- 36.1 3.8 1958 11.7 29.4- 2.5 1953 18.6 30.1 1.6 1948 21.6 25.9 1.2 1938 24-. 6 24-. 7 1.0 A l l 16.0 25.4- 1.6 The summary shows that i n each year a larger propor-t i o n of f i n a n c i a l statements contained footnotes than integrated notes. Of greater s i g n i f i c a n c e , perhaps, was that i n the twenty-five year period under review, the. trend was towards a decrease i n the proportion of f i n a n c i a l statements con-taining integrated notes. Concommitant with this was the growing practice of appending footnotes to the f i n a n c i a l statements. These opposite trends were r e f l e c t e d i n the increasing r a t i o of the number of f i n a n c i a l statements con-taining footnotes to the number of f i n a n c i a l statements containing integrated notes. 15. Use of Tables 2.2, 2.6, 2.7. 45 To observe the pr e v a i l i n g practice i n each industry, 16 the following summary i s presented. % of F i n a n c i a l Statements i n each Industry Industry Finance Forest & A l l i e d Iron & Steel Capital Consumption Public U t i l i t y Service Miscellaneous A l l (a) That Contained (b) That Had Integrated Notes Footnotes Appended 18 12 20 17 17 16 12 15 16 20 29 38 18 27 37 33 33 25 Ratio of number of F i n a n c i a l Statements with Footnotes to Number with Integrated Notes 1.0 2.4 1.9 1.1 1.7 2.3 2.8 2.2 1.6 The summary shows that without exception, each of the industries had a larger proportion of f i n a n c i a l statements with footnotes than with integrated notes. This d i f f e r -e n t i a l was greatest i n service and l e a s t i n finance. Number of Notes The s t a t i s t i c s i n Table 2.8 indicate that, i n the aggregate, there were 1207 notes. The Table further shows 16. Use of Tables 2.2, 2.6 and 2.7. that the volume of notes increased over the years. TABLE 2.8 Number of Notes, C l a s s i f i e d by Industries and Years, 1938-1963 Indus try I963 1958 1953 19U8 1938 Total i n Indus try J L Finance 30 25 8 8 3 7k 6 Forest & A l l i e d 29 30 13 10 9 91 7 Iron & Ste e l 52 k5 29 22 21 169 lk C a p i t a l 78 33 8 8 2 129 11 Consumption 79 51 38 4-4- 15 227 19 Public U t i l i t y 62 55 4-6 25 27 215 18 Service 7k kS k7 39 25 233 19 Total i n Year 4-30 298 199 168 112 1207 100 % 35 25 17 14- 9 100 Service had the most notes, followed clo s e l y by con-sumption and public u t i l i t y . Miscellaneous had the l e a s t number of notes. Finance fared s l i g h t l y better - having f i v e more. To see whether there was an increase i n the use of notes i n the Annual Report, Table 2.9 i s presented. Table 2.9 shows that, i n t o t a l , more and more notes were used i n the Annual Report throughout the 25 year period under review. TABLE 2 . 9 Average Number of Notes Per Annual Report, C l a s s i f i e d by Industries and Years, 1 9 3 8 - 1 9 6 3 Industry Industry 1 9 6 3 1 9 5 8 1 9 5 \ 1 9 4 8 1 9 3 8 Average Finance 4 . 3 3 . 6 1 .7 1.7 0 . 6 2 . 4 Forest & A l l i e d 4 . 1 2 . 2 1 .7 1 . 8 2 . 9 Iron & Steel 4 . 7 4 . 1 2 . 9 3 - 1 2 . 3 3 ^ C a p i t a l 7.1 4 . 1 1 . 6 2 .7 1 . 0 4 . 0 Consumption 5 . 6 3 . 6 2 . 9 3 A 1 . 5 3 . 5 Public U t i l i t y 8 . 9 7 .9 6 . 6 3 . 6 3 . 9 6.14 Service 7 A 6 . 0 5 . 9 5 . 6 5 .o 6 . 1 3 Miscellaneous 3 A 1 . 8 2 . 0 2 . 8 2 . 5 2 . 6 Yearly Average 5 .7 4 . 4 3 . 3 3 . 1 2 . 4 4 . 0 On an industry basis, i t i s evident that public u t i l -i t y had most notes per Annual Report. Service was not f a r behind. These two industries had figures well ahead of the other i n d u s t r i e s . On the other hand, finance had the low-est number of notes i n i t s Annual Report. I t i s s i g n i f i c a n t to observe that finance, public u t i l i t y and service a l l tended towards the use of more notes i n the Annual Report, throughout the 2 5 year period under review. A l l other industries experienced a long-run i n -crease i n the use of more notes i n the Annual Report. 4-8 Types of Notes Three p r i n c i p a l types of notes had been d i f f e r e n -t i a t e d : integrated notes, footnotes and separate notes. The s t a t i s t i c s i n Table 2.10 show that of the t o t a l of 1207 notes, 670 (or 56$) were separate notes, 299 (or 25$) were footnotes and 238 (or 19$) were integrated notes. One of the outstanding features of the Table i s the i n d i c a t i o n of the transfer of information from the i n t e -grated notes to the separate notes over the years. The proportion of footnotes remained r e l a t i v e l y constant. TABLE 2.10 Notes C l a s s i f i e d by P r i n c i p a l Categories and Years, 1938-1963 (Figures i n brackets are Percentages of Total i n Year) Year Integrated Notes Footnotes Separate Notes Total 1963 37( 9) 104-C240 290(67) 4-30 1958 39(13) 71(24-) 188(63) 298 1953 4-7(24-) 54-(27) 98(4-9) 199 1948 61(37) 4-1(24-) 66(39) 168 1938 54-(48) 30(27) 28(25) 112 Total 238(20) 299(25) 670(55) 1207 Table 2.11 shows a predominance of separate notes i n each of f i v e of the i n d u s t r i e s . This predominance was most pronounced i n service, where separate notes outnumbered the 49 TABLE 2.11 Notes C l a s s i f i e d by P r i n c i p a l Categories and Industries (Figures i n brackets are percentages of t o t a l i n industry) Industry Integrated Notes Footnotes Separate Notes Totai Finance 11(15) 14(19) 49(66) 74 Forest & A l l i e d 17(19) 43(47) 31(34) 91 Iron & Steel 43(26) 63(37) 63.(37) 169 Capital 21(16) 21(16) 87(68) 129 Consumption 32(14) 50(22) 145(64) 227 Public U t i l i t y 68(32) 38(17) 109(5D 215 Service 21 ( 9) 38(16) 174(75) 233 Miscellaneous 25(37) 32(45) 12(18) 69 the other two categories of notes combined by seven to three. Quite d i f f e r e n t patterns of d i s t r i b u t i o n emerged i n the other three i n d u s t r i e s . In i r o n and s t e e l , there was an equal number of footnotes and separate notes, while the integrated notes sector was the smallest. This was also the industry with the smallest range. Both forest and a l l i e d and miscellaneous showed a preponderance of foot-notes. In f o r e s t and a l l i e d , separate notes outnumbered the integrated notes whereas i n miscellaneous, the reverse was true. 50 To sum up, f o r e s t and a l l i e d and miscellaneous used more footnotes for disclosure purposes. A l l other industries ex-cept i r o n and s t e e l (which had an equal number of both foot-notes and separate notes) used more separate notes. Number of Note Gases A d i s t i n c t i o n had been made between notes and note cases. A note might represent one or more note cases, de-pending on the number of items of information i t contained. Table 2.12 shows the volume of note cases under review. TABLE 2.12 Number of Note Cases C l a s s i f i e d by Industries and Years, I938-I963 Industry 1963 1958 1953 1948 1938 Total 1 Finance 4-4- 3M- 8 8 3 97 7 Forest & A l l i e d L 32 33 19 11 9 104- 7 Iron & Steel 72 60 32 25 21 210 14-C a p i t a l 114- 4-6 10 8 3 181 12 Consumption 103 68 k9 4-9 16 285 19 P u b l i c U t i l i t y 83 67 57 32 32 271 18 Service 82 60 55 k5 31 273 18 Miscellaneous 33 12 10 11 10 76 5 Total 563 379 24-0 190 125 14-97 100 % 38 25 16 13 8 100 51 In t o t a l , there were 1497 note cases. Of these, 56 3 (or 38%) were i n 1963; 379 (or 25%) were i n 1958; 240 (or 16#) were i n 1953; 190 (or 13%) were i n 1948 and 125 (or 13%) were i n 1938. By i n d u s t r i e s , i t i s clear that consumption had the most note cases, followed by service and public u t i l i t y . Miscellaneous had the fewest note cases. In the aggregate, as well as f o r each of s i x of the i n d u s t r i e s , each succeeding year had more note cases than the preceding. The two exceptions were forest and a l l i e d and miscellaneous. Average Number of Note Cases per Annual Report Table 2.13 rel a t e s the note cases to the Annual Reports. For a l l years and a l l industries combined, each Annual Report contained 4.9 note cases. This could be compared with an average of 4.0 notes per Annual Report. The yearly average increased s i g n i f i c a n t l y for 1958 and 1963 - with figures of 5.5 and 7.5 respectively. How-ever, the increase had been evident and continuous since 1938. Between 1953 and 19&3? ^ n e r a t e of increase was around 37% f o r each of the f i v e year periods. Of the i n d u s t r i e s , public u t i l i t y had the highest average. This was followed by service and c a p i t a l . These were the only three industries with averages higher than the composite average of 4.9 note cases per Annual Report. On 5 2 TABLE 2 . 1 3 Average Number of Note Gases per Annual Report by Industries and Years, I938-I963 Industry 1 9 6 3 1 9 5 8 1 9 5 1 I 9 4 6 1238 Indus try Average Finance 6.3 4-. 9 1 . 7 1 . 7 0.6 3.1 Forest & A l l i e d 4-. 6 4-.7 3.2 1.8 1.8 Iron & Steel 6 . 6 5.6 3.2 2.8 2.3 *.3 Capital 10.4- 5.8 0.8 2 . 7 1.5 6.2 Consumption 7 A 4-.9 3 . 8 3.8 1.6 4-. 5 Public U t i l i t y 1 1 . 9 9.6 8.1 4-. 6 4-. 6 7.7 Service 8.2 7.5 6.9 6.4- 6.2 7.2 Miscellaneous 4-.1 2.0 2.0 2.8 2.5 2.8 Yearly Average 7.5 5.5 4-.0 3.5 2 . 7 4-. 9 the other hand, miscellaneous had the lowest number of note cases per Annual Report. I t i s evident from Table 2 . 1 3 that the Annual Reports i n seven of the industries contained an increasing number of note cases over the years under review. Forest and a l l i e d , the only exception, showed an increasing use of note cases between 1 9 3 8 and 1 9 5 8 . This increasing trend was stopped i n 1 9 6 3 . The Relationship Between Notes and Note Cases The s t a t i s t i c s i n Table 2.14- show that f o r the survey as a whole, there were 1 . 2 note cases per note. Over the 53 TABLE 2.14-Average Number of Note Cases Per Note by Industries and Years, I938-I963 1958 1946 1938 Industry Indus try 19J43, 1953 Average Finance 1.5 1.4- 1.0 1.0 1.0 1.3 Forest & A l l i e d 1.1 1.1 1.5 1.1 1.0 1.1 Iron & Steel 1.4- 1.3 1.1 1.1 1.0 1.2 Capital 1.5 1.4- 1.3 1.0 1.5 1.4-Consumption 1.3 1.3 1.3 1.1 1.1 1.3 Public U t i l i t y 1.3 1,2 1.2 1.3 1.2 1.3 Service 1.1 1.3 1.2 1.2 1.2 1.2 Miscellaneous 1.2 1.1 1.0 1.0 1.0 1.1 Yearly Average 1.3 1.3 1.2 1.1 1.1 1.2 years, the tendency was to disclose more than one item of information i n each note. The industry with the most multi-cased notes was c a p i t a l . This was followed by finance, consumption and public u t i l i t y , i n that order. On the other hand, the notes i n miscellaneous were t y p i c a l l y single-cased. U n t i l 1958, a l l the notes i n finance and miscellaneous were si n g l e -cased, while i n both f o r e s t and a l l i e d and i r o n and s t e e l the f i r s t multi-cased note appeared i n 1946. 5k Number of Note Cases i n the P r i n c i p a l Categories of Notes Table 2.1? shows that of the 14-97 note cases, 62$ were i n the separate notes category, 21$ belonged to the foot-notes category and 17$ were i n the integrated notes cate-gory. TABLE 2.15 Note Cases C l a s s i f i e d by P r i n c i p a l Categories of Notes and Years, 1938-I963 (Figures i n brackets are Percentages of Total i n Year) Year Integrated Notes Footnotes Separate Notes Total 1963 37 ( 7) 108(19) 4-18(74-) 563 1958 4-0(11) 72(19) 267(70) 379 1953 4-9(20) 55(23) 136(57) 24-0 1948 69(36) 4-1(22) 80(4-2) 190 1938 57(k6) 35(28) 33(26) 125 Total 252 (17) 311(21) 93^(62) 14-97 The s t a t i s t i c s also c l e a r l y indicate a transfer of information from the integrated notes to the separate notes during the period under review, while the proportion of footnote cases remained r e l a t i v e l y constant. Table 2.16 presents the industry picture. Public u t i l i t y , c a p i t a l , finance, consumption and service a l l had an overwhelming number of separate note cases. In these 55 i n d u s t r i e s , with the exception of finance and public u t i l i t y , the footnote sector was larger than the integrated note sector. TABLE 2.16 Note Cases C l a s s i f i e d by P r i n c i p a l Categories of Notes and Industries Industry Integrated Notes Footnotes Separate Notes Total Finance 11(11) 14(15) 72(74) 97 Forest & A l l i e d 19(18) 44(42) 41(40) 104 Iron & Steel 46(22) 66(31) 98(47) 210 Capital 22(12) 21(12) 138(76) 181 Consumption 34(12) 50(17) 201(71) 285 Public U t i l i t y 73(27) 39(14) 159(59) 271 Service 22( 8) 42(15) 209(77) 273 Miscellaneous 25(33) 35(46) 16(21) 76 Total 252(17) 311(21) 934(62) 1497 Footnote cases represented the modal category f o r both f o r e s t and a l l i e d and miscellaneous. In forest and a l l i e d , the separate note sector was bigger than the integrated note sector while the reverse was true for miscellaneous. Iron and s t e e l achieved a more equitable d i s t r i b u t i o n of the note 56 cases between the three categories. To show which of the categories of note cases was more multi-cased, the following summary i s presented. This summary expresses the number of cases within each category as a r a t i o of the number of notes i n each corresponding category. Number of Note Cases-,,-, Category of Notes Per Note i n Category ' Integrated Notes 1.06 Footnotes 1.04 Separate Notes 1.39 A l l i.24-The summary indicates that more separate notes were multi-cased than either the integrated notes or the foot-notes. The integrated notes category was s l i g h t l y more multi-cased than the footnotes category. Over the years under review, i t i s clear that the practice of putting more than one item of information i n each note was gaining popularity with the separate notes, as the following summary shows. Number of Note Cases Per Note Category of Notes 1963 1958 1953 1948 1938 Integrated Notes 1.0 1.03 1.04- 1.13 1.06 Footnotes 1.03 1.01 1.02 1.00 1.17 Separate Notes 1.44 1.4-2 1.39 1.21 1.18 17. Computed from Tables 2.10 and 2.15. 57 In contrast, since 1948, the integrated notes category tended towards r e s t r i c t i n g i t s notes to d i s c l o s i n g only one item of information. The p r e v a i l i n g practice i n each industry i s shown by the summary below. I t i s evident from the summary that i n finance, only the separate notes were multi-cased. Finance and miscellaneous were the only two industries whose i n t e -grated notes were completely single-cased. In three i n -dus t r i e s , the footnotes were e n t i r e l y single-cased. In a l l i n d u s t r i e s , the separate notes were multi-cased. Category FI FA IS CL, CN BU SE MI Integrated Notes 1.00 1.12 1.0? 1.05 1.06 1.07 1.05 1.00 Footnotes 1.00 1.02 1.05 1.00 1.00 1.03 1.13 1.10 Separate Notes 1.47 1.32 1.56 1.59 1.39 1.46 1.20 I .33 Note: FI - Finance CN - Consumption FA - Forest & A l l i e d PU - Public U t i l i t y IS - Iron & Steel SE - Service CL - Capital MI - Miscellaneous Number of Statements of Separate Notes For the survey, there were 99 statements of notes. The summary below indicates the percentage of Annual Reports i n each year that contained statements of notes. 58 Number of Number of % of Annual Reports Statements Annual Containing Statements Year of Notes Reports of Notes 1938 2 46 4-19kQ 7 55 13 1953 lk 60 23 1958 32 68 4-7 1963 4-4- 75 59 A l l 99 304- 32 The summary shows that' i n the aggregate, 32$ of the Annual Reports contained statements of notes. I t i s more s i g n i f i c a n t to observe that the practice of enclosing a statement of notes was adopted by a growing proportion of companies over the years. To indicate the pr e v a i l i n g industry practice, the following summary i s presented. Number of Number of $ of Annual Statements Annual Reports Contain-of Notes i n Reports i n ing Statement Indus try Indus try Indus try of Notes Service 19 38 50 Public U t i l i t y 15 35 M-3 C a p i t a l 12 29 4-1 Consumption 20 64- 31 Iron & Steel 14- 4-9 29 Finance 8 31 26 Forest & A l l i e d 8 31 26 Miscellaneous 3 27 11 A l l 99 304- 32 59 From the above summary, i t i s evident that the practice of enclosing a statement of notes was most accepted i n service. Public u t i l i t y and c a p i t a l were the other two industries with figures higher than the o v e r - a l l average. CHAPTER III THE INFORMATIONAL CONTENT OF THE NOTES -A TREND ANALYSIS A comprehensive study of notes involves an analysis of the two rela t e d aspects of a note - i t s informational content and i t s format. This chapter, and the one follow-ing, examines, i n considerable d e t a i l , the informational content of the notes. The succeeding two chapters analyse the format of the notes. The chapter begins by discussing the informational content of a l l notes, taken together, without regard to the s p e c i f i c years i n which these a r i s e . The analysis w i l l be brought a step further by considering the trends that a r i s e over the years. Repeatedly, the attempt w i l l be to indicate what the future s i t u a t i o n i s l i k e l y to be, i f present trends continue. In both stages, the analysis w i l l be oriented towards bringing out the s a l i e n t features of each of the three p r i n c i p a l categories of notes - integrat-ed notes, footnotes and separate notes. The Subjects of the Note Cases Table 3«1 shows the subjects covered by the notes. In the aggregate, common stock was discussed most f r e -quently. A close second was contingent l i a b i l i t i e s and 61 TABLE 3.1 Note Cases C l a s s i f i e d by P r i n c i p a l Categories and Subjects (As percentages of t o t a l i n each category) Integrated Footnotes Separate A l l Notes Subject Notes Notes  Total number of note cases m m ____ Current Assets 19 A 2.2 3.0 5.6 Land & Fixed Assets 2.8' 2.6 4-.6 3-9 Other Assets 7.5 3-2 3A 4-.1 Income Determination 0.6 5.2 5.0 Long Term Debts 3-6 17.5 8.3 9A Taxes 3.6 4-. 2 5A 4-.8 Contingent L i a b i l i t i e s & Commitments 4-.4- 2.6 15.7 11.0 Preferred Stock 2.4- •1.9 6.0 4-.5 Common Stock 2.0 10.0 17.4- 11.4-Options, Warrants & Rights 6.0 3.8 5.5 5.2 Reserves, Provisions & Retained Earnings 9.9 2.6 8.2 7.4-Subsidiaries (including Investments i n Subsidiaries) 2.0 1.3 5.0 3.7 Referencing 2.4- 30.8 0.0 6.8 Identifying Methods, Procedures or Mechanisms 0.8 10.9 0.0 2.4-General, Non-Specific Matters 13.1 10.3 7.8 9.2 Miscellaneous 11.0 h.5 h.5 5.6 commitments, followed by long term debts. At the other end of the scale, notes were l e a s t used as i d e n t i f y i n g devices. This apart, subsidiaries and land and f i x e d assets were the subjects l e a s t commonly discussed. By broad subject classes, i t i s evident that equities, as a subject, was most often frequently referred to. The percentage figure of 29 compared well with a figu r e of 20$ f o r l i a b i l i t i e s and 16$ f o r assets. The summary, below, indicates the degree of concentra-t i o n of the note cases i n the subjects. Cumulative % of Note Number of Subjects Cases i n Subjects Most frequently referred subject 11 F i r s t two subjects 22 F i r s t three subjects 32 F i r s t four subjects 4-1 F i r s t f i v e subjects 46 F i r s t s i x subjects 55 F i r s t ten subjects 77 I t i s clear from the summary that there was a r e l a -t i v e l y high degree of concentration of the note cases - half of a l l the note cases dealt with one of six subjects. Current assets was most dealt with by the integrated notes, whereas a r e l a t i v e l y high proportion of the foot-note cases were used as referencing devices. For the separ-ate note cases,common stock was most frequently discussed. 63 I t i s s i g n i f i c a n t to observe that none of the separate notes was used as i d e n t i f y i n g or referencing devices. The s t a t i s t i c s suggest a degree of s p e c i a l i s a t i o n i n the use of the three categories of note cases. This was e s p e c i a l l y pronounced f o r the footnote category where about h i n every 10 note cases were used as d i r e c t i v e devices. Topics of the Mote Gases Table 3.2 shows that 53$ of a l l note cases were of a f i n a n c i a l nature (see, f o r example, Note No. 37 i n Appendix B), 37$ of a technical nature (see, for example, Note No. 15 i n Appendix B) and 10$ were d i r e c t i v e (see'Note No. 21 i n Appendix B). This predominance of f i n a n c i a l cases could be observed i n the two categories of integrated notes and separate notes. Dire c t i v e cases predominated i n the footnote category. I t i s s i g n i f i c a n t to observe that the footnote category was the only one that had audit cases. Within the f i n a n c i a l and the technical classes, sub-classes were distinguished. For a l l notes combined, as well as f o r each category, the f i n a n c i a l cases were l a r g e l y elabor> a t i v e . F i n a n c i a l , comparative cases were l e a s t i n both the footnote category and the separate note category. For the integrated note category, f i n a n c i a l note cases, descriptive of.events, were l e a s t . With reference to the technical note cases, a l l three categories had the smallest proportion of business and econo-mic note cases, audit cases apart. While for a l l categories 64-of notes combined, as well as f o r the integrated note cate-gory and the separate note category, procedural cases were most important, f o r the footnote category, l e g a l and con-t r a c t u a l cases predominated. TABLE 3.2 Note Cases C l a s s i f i e d by P r i n c i p a l Categories and Topics (As percentages of t o t a l i n each category) Integrated Separate Topics Notes Footnotes Notes A l l Notes Total number of note cases 252 311 F i n a n c i a l , t o t a l 2t 3-L &k l i Elaborative 31 17 32 29 Comparative 8 2 7 6 Event descriptive 4 - 5 9 7 Others 11 7 13 11 Technical, t o t a l 2>1 22 2& 21 Procedural 27 10 19 19 Audit 0 2 0 1 Legal & contractual 8 15 14- 13 Business & economic p o l i c i e s , e f f e c t s & explanations 2 2 6 4-Directive 9_ 4_0 0 10 65 P e r i o d i c Relations of the Note Gases The s t a t i s t i c s i n Table 3.3 show that the note cases were overwhelmingly current (see, for example, Note No. 31 i n Appendix B). The proportion of future note cases was very small. Within th i s class of note cases, more note cases were non-retroactive (see, f o r example, Note No. 4-2 i n Appendix B). It can be seen from the Table that the l o c a t i o n of the note cases had no influence on the d i s t r i b u t i o n of the note cases by periodic r e l a t i o n s . TABLE 3.3 Note Gases C l a s s i f i e d by P r i n c i p a l Categories and Periodic Relations (As percentages of t o t a l i n each category) P e r i o d i c Integrated Separate Relations Notes Footnotes Notes A l l Notes Total number of note cases 2g S i 23k W7 Current 80 84- 76 78 Past 15 11 17 15 Future, t o t a l 5 5 7 7 Retroactive 2 l 2 2 Non-retroactive 3 4- 5 5 66 Regularity of the Note Cases About seven i n every ten note cases were recurrent (see, f o r example, Note No. 20 i n Appendix B), as Table 3.4- shows. This predominance of recurrent note cases re-mained true f o r both the integrated note sector as well as the separate note sector. The footnote sector represented a notable exception - about two i n every three note cases were non-recurrent (see, f o r example, Note No. 19 i n Appendix B). TABLE 3.4-Note Cases C l a s s i f i e d by P r i n c i p a l Categories and Regularity and Duration (As percentages of t o t a l note cases i n each category) Regularity Integrated Notes Footnotes Separate Notes A l l Notes Total number of note cases 252 £k 14-97 Recurrent 68 37 71 63 Non-recurrent 32 63 29 37 Quantitative Content of the Note Cases Table 3»5 indicates that there were more quantita-t i v e note cases than non-quantitative note cases (see, f o r example, Note No. 33 and Note No. 10 i n Appendix B). This was also true of the integrated note category and the 67 separate note category. For the footnote category, how-ever, for every four quantitative cases there were s i x non-quantitative cases. TABLE 3 . 5 Note Gases C l a s s i f i e d by P r i n c i p a l Categories and Quantitative Content (As percentages of t o t a l note cases i n each category) Content Integrated Notes Footnotes Separate Notes A l l Notes Total number of note cases 252 -U 1497 Quantitative 54 40 63 57 Non-quantitative 46 60 37 43 Subjects and Topics of the Note Cases Table 3*6 shows that the note cases dealing with assets were predominantly te c h n i c a l . However, those r e l a -ting to the other broad subject classes x^ere l a r g e l y finan-c i a l . The same pattern prevailed i n each of the categories of notes, with one exception. The l i a b i l i t y note cases i n the footnote category were l a r g e l y technical, rather than being f i n a n c i a l . 68 TABLE 3 . 6 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Major Subjects Classes and Topics F i n a n c i a l Technical Note Cases Note Cases Subject Class I F s T I F S T Assets 36 36 33 35 64- 64- 67 65 L i a b i l i t i e s 80 36 58 55 20 64- 4-2 k5 Equities 88 65 71 71 22 35 29 29 Other Subjects 55 74- 61 61 32 26 39 36 Note: 1. Audit and d i r e c t i v e cases are excluded from Table. 2. Figures are percentages of t o t a l number of note cases i n each category of notes. Subjects and Periodic Relations of the Note Cases Table 3.7 shows that f o r a l l categories of note cases combined, each broad subject class was predominantly current. This pattern also prevailed for each category of note cases. Note cases pertaining to "other subjects 1 8 , seemed to re l a t e more frequently to a future period than any of the other broad subjects. On the other hand, i t was the equity note cases within the integrated note category that more requently pertained to a past period than any other broad subject within any of the other categories. 69 TABLE 3.7 Note Gases C l a s s i f i e d by P r i n c i p a l Categories, Major Subject Classes and Periodic Relations (As percentages of t o t a l note cases i n each category) Current Period Past Period Future Period Class I F s T I F S T I F s T Assets 92 88 92 92 7 8 1 h 1 7 h L i a b i l i t i e s 95 85 68 73 5 15 30 25 10 0 2 2 Equities 63 69 79 77 37 28 20 22 0 3 1 1 Directive 100 100 0 100 0 0 0 0 0 0 0 0 Others 77 58 71 70 13 20 10 12 10 22 19 18 Subjects and Regularity of Note Cases Table 3.8 shows that with the exception of d i r e c t i v e note cases (which were c l a s s i f i e d as non-recurrent) the note cases pertaining to each of the broad subjects were predom-inantly recurrent. The separate note cases pertaining to each of the subjects showed a sim i l a r pattern. Exceptions arose f o r the footnote cases as well as the integrated note cases pertaining to l i a b i l i t i e s . 70 TABLE 3.8 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Major Subject Classes and Regularity and Duration (As percentages of t o t a l note cases i n each category) Recurrent Non-recurrent Subject Class I F S T I F S T Assets 85 88 70 78 15 12 30 22 L i a b i l i t i e s 50 29 69 60 50 71 31 40 Equities 67 66 67 67 33 3>h 33 33 Directive 0 0 0 0 100 100 0 100 Others 64 86 78 76 36 14 22 24 Subjects and Quantitiative Content of Note Cases The s t a t i s t i c s i n Table 3.9 show that the note cases dealing with each of the subjects, with exception of direc-t i v e note cases, were l a r g e l y quantitative. This also was true of each of the categories, with the following exceptions. More of the footnote cases pertaining to assets and of integrated note cases per-taining to "other subjects" were non-quantitative. 71 TABLE 3.9 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Major Subject Classes and Quantitative Content (As percentages of t o t a l note cases i n each, category) Quantitative Non-quantitative Subject Class I F S T I 7'F S T Assets 52 43 58 54 48 52 42 46 L i a b i l i t i e s 70 81 78 78 30 19 22 22 Equities 75 52 63 63 25 48 37 37 Directive 25 0 0 1 75 100 100 99 Others 44 72 53 54 56 28 47 46 Topics and Periodic Relations of the Note Cases The s t a t i s t i c s i n Table 3.10 show that the note cases i n each of the topics were predominantly current. This was also true when the note cases were examined by categories. F i n a n c i a l footnote cases pertained more often to- a future period than the note cases dealing with the other topics i n the other two categories. On the other hand, i t was the f i n a n c i a l , integrated note cases that referred more frequently to a past period. 72 TABLE 3.10 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Topics and Periodic Relations (As percentages of t o t a l note cases i n each category) Current Period Past Period Future Period  Topic I F S :T I F S T I F S T F i n a n c i a l 70 63 8.0 76 25 24 lk 17 5 13 6 7 Technical 89 87 69 76 k 10 23 17 7 3 8 7 Directive 100 100 0 100 0 0 0 0 0.- 0; 0 0 Topics and Regularity of the Note Cases Table 3»H shows that, d i r e c t i v e cases apart, the note cases pertaining to a f i n a n c i a l or a technical topic were l a r g e l y recurrent. This was also true f o r each of the cate-gories of notes examined i n d i v i d u a l l y with one exception. More of the technical cases i n the footnote category were non-recurrent than recurrent. TABLE 3.11 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Topics and Regularity and Duration (As percentages of t o t a l note cases i n each category) Recurrent Non-recurrent Topic I F s T I F s T F i n a n c i a l 76 7k 68 70 24 26 32 30 Technical 72 k6 75 70 28 54 25 30 D i r e c t i v e 0 0 0 0 100 100 0 100 73 Topics and Quantitative Content of the Note Gases The s t a t i s t i c s i n Table 3.12 show that with the ex-ception of the d i r e c t i v e cases, the note cases dealing with a f i n a n c i a l or a technical topic were l a r g e l y quantita-t i v e . Without exception, i n each of the categories of note cases, quantitative f i n a n c i a l and technical note cases outnumbered non-quantitative note cases. TABLE 3.12 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Topics and Quantitative Content (As percentages of t o t a l note cases i n each category) Quantitative Non-quantitative Topic I F s T I ? s T F i n a n c i a l 61 76 70 69 39 24 30 31 Technical 53 55 53 54 47 45 47 46 Directive 0 0 0 0 100 100 0 100 Periodic Relations and Regularity of the Note Cases Table 3.13 shows that f o r a l l categories of note cases combined, there were more recurrent note cases than non-recurrent cases i n each of the periods. This pattern remained true when the note cases i n each category were examined separately, with two exceptions. The current footnote cases were predominantly non-74 recurrent. The same was true of the future, separate note cases. TABLE 3.13 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Periodic Relations and Regularity and Duration (As percentages of t o t a l note cases i n each category) Note Cases Recurrent Non--recurrent Referring to a: I F S T I F s T Current Period 64 27 68 58 36 73 32 42 Past Period 92 100 . 95 95 8 0 5 5 Future Period 57 81 42 51 *+3 19 58 49 Periodic Relations and Quantitative Content of the Note Cases Table 3.14 shows that the only exception to the pre-dominance of quantitative note cases was the future, separ-ate note cases. More of these were non-quantitative. TABLE 3.14 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Periodic Relations and Quantitative Content (As percentages of t o t a l note cases i n each category) Note Cases Quantitative Non-quantitative Referring to a: I F S T I F , s T Current Period 48 34 63 54 52 66 37 46 Past Period 74 62 76 73 26 38 24 . 27 Future Period 79 94 36 52 21 6 64 48 75 Regularity and Quantitative Content of the Note Gases The s t a t i s t i c s i n Table 3.15 shows that with one ex-ception, recurrent cases predominated. The non-quantita-t i v e footnote cases were l a r g e l y non-recurrent, represent-ing the exception. TABLE 3.15 Note Gases C l a s s i f i e d by P r i n c i p a l Categories, Regularity and Duration and Quantitative Content (As percentages of t o t a l note cases i n each category) Recurrent Non-recurrent Content I F S T I F S T_ Quantitative 70 59 71 70 30 4-1 29 30 Non-Quantitative 65 22 69 55 35 78 31 4-5 The Subjects of the Note Cases; A Trend Analysis A trend analysis of the information presented i n the note cases required a regrouping of the sixteen subjects into four broad subject classes. Later sections examine each of these subject classes i n d e t a i l . The s t a t i s t i c s i n Table 3.16 show that f o r a l l categories of notes combined, as at 1963? e q u i t i e s , as a subject, was most frequently discussed. On the other hand, assets was l e a s t discussed. Past years' figures c l e a r l y indicated that proportionately fewer note cases referred 76 TABLE 3.16 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Major Subject Classes and Years, 1938-1963 (As percentages of t o t a l note cases i n each category) H o n _ Q U r r e n £ Assets L i a b i l i t i e s Equities Others Year I F S T I F S T I P S T I F S T 1963 22 7 10 10 11 17 23 21 22 1 39 32 45 75 28 37 1958 30 12 11 13 7 21 25 22 22 8 38 31 41 49 26 3^  1953 33 5 11 14 8 20 23 20 25 13 42 32 3"+ 62 24 34 1948 32 5 15 19 7 22 24 18 19 5 31 21 42 68 30 42 1938 30 9 21 22 7 26 27 18 16 9 9 12 47 56 43 52 A l l 30 8 11 14 8 20 24 20 20 9 37 28 42 63 28 38 Note: 1. "Assets" comprised of current assets, land and f i x e d assets and other assets. 2. "Non-current l i a b i l i t i e s " comprised of long term debts and contingent l i a b i l i t i e s , and commit-ments. 3. "Equities" comprised of preferred stock; common stock; options, warrants and r i g h t s ; reserves, provisions and retained earnings. 4. "Others" included a l l subjects not included i n the above three categories. to assets, while equities tended to be discussed more f r e -quently. E q u i t i e s , as a subject, was also more frequently re-f e r r e d to i n the separate notes than any of the other sub-j e c t s . The trend, i n t h i s category of notes, was towards a decrease i n the number of note cases dealing with assets. As of 1963, a considerably larger proportion of the integrated note cases referred to assets than the other two categories. However, the practice of using the i n t e -grated note cases to disclose information pertaining to assets decreased since 1953* As had been mentioned, the footnote cases were large-l y d i r e c t i v e . Since 1948, the proportion of d i r e c t i v e foot-note cases hovered around 4-0$, as the following summary shows: 1£63, 122B 1213. 1 2 M 1238 f0 of Directive Footnote Cases 48 4-0 4-0 4-6 28 Asset Note Cases: A Trend Analysis An outstanding feature of Table 3.17 i s that asset note cases y i e l d i n g information on "other assets" decreased over the years. The tendency was to provide more informa-t i o n on land and f i x e d assets. For the integrated notes category, since 1948, there was a s h i f t from the presentation of information on other assets to that on current assets. Generally, the propor-t i o n of such note cases providing additional information on land and f i x e d assets also decreased. As of 1963, half of the asset footnote cases pro-vided information r e l a t i n g to other assets. No clear trend seemed to ari s e f o r t h i s category of notes. 78 TABLE 3.17 Asset Note Gases, C l a s s i f i e d by P r i n c i p a l Note Categories, Types of Assets and Years, 1938-1963 (As percentages of t o t a l note cases i n each category) Current Land and Other Assets Fixed .Assets Assets Year I F s T I F s T I F S T 1963 88 38 22 3^  0 12 58 43 12 50 20 23 1958 67 22 28 36 8 56 41 36 25 22 31 28 1953 69 33 33 50 6 33 27 18 25 33 40 32 1948 50 0 42 44 23 50 16 22 27 50 42 3^  1938 71 33 14 52 0 0 29 7 29 67 57 41 A l l 65 28 27 41 9 32 42 29 26 40 31 30 The s t a t i s t i c s also indicate that of the separate note cases dealing with assets, there was a clear tendency fo r a larger proportion of these to relate to land and f i x e d assets, since 1948. Concommitant with t h i s was the decline i n the proportion of note cases dealing with current assets, as well as of other assets. This decline, started i n 1948, was s t i l l evident i n 1963. Non-current L i a b i l i t y Note Gases: A Trend Analysis Non-current l i a b i l i t y note cases represented 20% of the t o t a l note cases, as indicated by Table 3.16 above. Two types of non-current l i a b i l i t y note cases were distinguished: long term debts and contingent l i a b i l i t i e s and commitments. 79 The s t a t i s t i c s i n Table 3'l8 show that i n the aggregate, more note cases dealt with contingent l i a b i l -i t i e s and commitments. More s i g n i f i c a n t l y , t h i s was the growing portion of the non-current l i a b i l i t y note cases. A s i m i l a r picture emerged for the separate note category. The s i t u a t i o n was d i f f e r e n t for both the i n t e -grated note category and the footnote category. The non-current l i a b i l i t y note cases i n the footnote category pre-dominantly pertained to long term debts. However, i t i s worth observing that t h i s portion was de c l i n i n g . TABLE 3.18 Non-current L i a b i l i t y Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Types of L i a b i l i t i e s and Years, 1938-1963 (As percentages of t o t a l note cases i n each category) Contingent L i a b i l i t i e s Long Term Debts and Commitments Year I F s T I F s T 1963 50 78 32 40 50 22 68 60 1958 67 87 37 h? 33 13 63 53 1953 25 91 31 k-5 75 9 69 55 1948 4o 89 37 52 60 11 63 48 1938 50 100 44 68 50 0 56 32 A l l *** 87 3^  46 55 13 66 5k 80 Equity Note Cases: A Trend Analysis This group of note cases represented some 29% of a l l note cases. Four classes of equity note cases were d i s -tinguished, as Table 3.19 shows. TABLE 3.19 Equity Note Cases C l a s s i f i e d by P r i n c i p a l Note Categories, Types of Equities and Years, 1938-1963 (As percentages of t o t a l note cases i n each category) n „ , „ Options, Reserves, Preferred Common Warrants Provisions & Stock Stock & R i g n t s Retained Year I F S T I F s T 1 _ F 3 : T I F s T 1963 0 27 17 17 0 9 K5 Kl 25 4-6 14- 16 75 18 24- 26 1958 11 17 19 18 0 0 Kl 36 33 50 11 15 56 33 29 31 1953 25 0 10 12 0 14- 60 K6 4-2 29 19 24- 33 57 11 18' 1948 8 50 4- 7 23 0 56 K3 31 50 28 30 38 0 12 20 1938 11 33 67 27 22 33 33 27 11 33 0 13 56 0 0 33 A l l 12 21 16 16 10 10 K7 ko 29 4-1 15 18 4-9 28 22 26 In the aggregate, common stock note cases formed the biggest component of equity note cases, followed by note cases r e l a t i n g to reserves, provisions and retained earn-ings. The practice of using the notes to provide additional information on options, warrants and rights declined over the years. 81 By categories, the equity note cases i n the i n t e -grated note category, footnote category and separate note category l a r g e l y pertained to reserves, provisions and retained earnings^ options, warrants and rights* and common stock respectively. Past years' figures suggested a tendency towards using the integrated note cases to describe reserves, pro-visions and retained earnings. On the other hand, the proportion of equity footnote cases r e l a t i n g to reserves, provisions and retained earnings seemed to decrease, since 1953. Between 1948 and 1958, the proportion of equity separate note cases dealing with common stock decreased. However, the s i t u a t i o n as of 1963 w a s uncertain. The Major Topics of the Note Gases: A Trend Analysis The s t a t i s t i c s i n Table 3.20 show that as of 1963, more than half of a l l note cases were f i n a n c i a l and only a small proportion was d i r e c t i v e . The Table further indicates a long-run decrease i n the proportion of f i n a n c i a l footnote cases. The trend was towards an increase i n the use of footnote cases as di r e c t i v e devices. It i s also s i g n i f i c a n t to observe that there was a growing practice over the years of using the Integrated notes as d i r e c t i v e devices. F i n a n c i a l Note Gases: A Trend Analysis In t o t a l , there were 802 f i n a n c i a l note cases. 82 TABLE 3.20 Rote Cases C l a s s i f i e d by P r i n c i p a l Categories, Major Topics and Years, 1938-1963 (As percentages of t o t a l note cases i n each category) F i n a n c i a l Technical Directive Year I F s T I F S T I F S T 1963 59 27 60 53 19 25 40 36 22 48 0 11 1958 62 25 59 52 28 37.5 kl 4o 10 37.5 0 8 1953 57 36 65 57 31 28 35 32 12 36 0 10 19li-8 36 29 69 48 61 32 31 42 3 39 0 10 1938 65 5k 55 59 32 23 45 33 3 23 0 8 A l l 5k 31 61 53 37 30 39 39 9 39 0 10 This represented 53$ of the survey t o t a l of note cases, as Table 3.20 shows. The s t a t i s t i c s i n Table 3«21 show that f o r a l l cate-gories of notes combined, since 1948, there was a growing practice to use more comparative note cases. The integrated note category showed a s h i f t from the presentation of elaborative note cases to comparative note cases. This occurred since 1948. An examination of the footnote category revealed two s i g n i f i c a n t features. The proportion of event descriptive note cases, decreased since 1953 while the f i r s t comparative 83 note case only appeared i n 1958. In comparison, i t i s relevant to point out that comparative note cases were found i n both the integrated note category and the separ-ate note category since 1938. TABLE 3.21 F i n a n c i a l Note Cases C l a s s i f i e d by P r i n c i p a l Categories, F i n a n c i a l Topics and Years, 1938-1963 (As percentages of t o t a l note cases i n each category) F i n a n c i a l F i n a n c i a l F i n a n c i a l Event F i n a n c i a l Elaborative Comparative Descriptive Others Year I F S T I F S T I F S T I F S T 1 1 . 11 in I. — 1963 55 59 52 52 23 10 12 13 4 10 16 15 18 21 20 20 1958 56 67 4-9 51 20 11 10 11 8 11 15 14 8 11 26 24 1953 64 50 55 56 18 0 12 12 9 35 14 15 11 15 19 17 1948 64 33 65 61 8 0 9 7 4 17 9 9 24 50 17 23 1938 46 74 56 55 11 0 11 8 11 0 11 8 32 26 22 29 A l l 56 58 53 54 16 5 l l l l 7 14 15 13 21 23 21 22 84 Technical Hote Gases: A Trend Analysis Table 3*22 shows that for a l l categories of note cases combined, the trend was towards a decrease i n the proportion of audit cases f o r the twenty-five year period under review. U n t i l 1 9 5 8 , there was a decrease i n the pro-portion of procedural note cases. A long-run trend to-wards the use of l e g a l and contractual note cases was also evident. TABLE 3.22 Technical Note Cases C l a s s i f i e d by P r i n t i p a l Categories, Technical Topics and Years, 1 9 3 8 - 1 9 6 3 (As percentages of t o t a l note cases i n each category) ; Technical, T e c h n i c a l , Technical, Technical, Legal & Business, Procedural Audit Contractual & Economic Year 1 F S T 1 F S T 1 F S T 1 F S T 1 9 6 3 86 63 50 53 0 0 0 0 14 33 35 3k 0 4 1 5 13 1958 91 41 42 k5 0 4 0 1 9 44 48 4 5 0 11 10 9 1953 73 20 52 51 0 13 0 1 20 60 27 33 7 7 21 1 5 1948 64 1 5 56 55 0 23 0 1 29 62 32 36 7 0 12 8 1938 83 13 60 61 0 12 0 3 17 75 20 29 0 0 20 7 A l l 7 4 38 ^9 51 0 8 0 1 22 48 37 37 4 6 14 11 The integrated note cases were predominantly procedur-a l throughout the period under review. Mora s i g n i f i c a n t l y , 85 there seemed to be a growing practice to use the integrated note cases f o r the disclosure of procedural matters. On the other hand, there were very few integrated business and economic matters. Disclosure of these matters were re-s t r i c t e d to 1948 and 1953. The Table also shows that u n t i l 1958, the separate notes seemed to concentrate more and more on the d i s c l o s -ure of l e g a l and contractual matters while the footnotes increasingly provided addi t i o n a l information on procedural matters. For the footnotes, t h i s was s t i l l evident i n 1963 but a reversal seemed to have set i n . Periodic Relations of Note Gases: A Trend Analysis Table 3.23 suggests that f o r a l l categories of note cases combined, the trend was towards an increase i n the proportion of current cases, f o r the decade 1953 to 1963. For the same period, the current cases i n both the integrated notes category and the footnote category con-tinuously decreased. The s t a t i s t i c s further show an i n -crease i n the proportion of separate note cases that referred to a past period. Since 1953> the proportion of separate note cases that pertained to a future period declined. Future Note-Cases: A Trend Analysis The s t a t i s t i c s i n Table 3.24- show that i n each of 86 TABLE 3.23 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Periodic Relations and Years, 1938-1963 (As percentages of t o t a l note cases i n each category) Year Current Past Future I F S T I F s T I F s T 1963 76 81 76 77 16 14 18 17 8 5 6 6 1958 83 83 71 75 17 13 21 19 0 4 8 6 1953 86 86 78 71 14 7 14 13 0 7 8 6 1948 81 90 84 84 10 5 10 9 9 5 6 7 1938 72 88 79 81 19 6 15 12 9 6 6 7 A l l 79 84 76 78 15 11 17 16 6 5 7 6 the years, the future cases were predominantly non-retro-acti v e . More s i g n i f i c a n t i s the f a c t that t h i s was the growing sector of the future note cases. This pattern prevailed i n the separate note category though the growth of the non-retroactive sector dated back to 1953. U n t i l 1958, a l l the future note cases i n the footnote category were non-retroactive. Since then, future retroactive cases increased. 87 TABLE 3.24-Future Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Future Types and Years, 1938-1963 (As percentages of t o t a l note cases i n each category) Future - Retroactive , Future - Non-Retroactive Year I F s T I F s T 1963 67 4-0 8 18 33 60 92 82 1958 0 33 24- 25 0 67 76 75 1953 0 0 k5 33 0 100 55 67 1948 50 0 4-0 38 50 100 60 62 1938 20 0 50 22 80 100 50 78 Regularity of Note Cases: A Trend Analysis The s t a t i s t i c s i n Table 3.25 r e f l e c t a general de-crease i n the proportion of non-recurrent cases f o r a l l categories of note cases combined. Though, i n 1963, the integrated note category was predominantly recurrent, past years' figures suggested a gradual decline i n the proportion of such note cases. The opposite trend was experienced i n the footnote category since 1948. I t i s s i g n i f i c a n t to observe that the foot-note category represented a notable exception, i n that i t s note cases were predominantly non-recurrent. In comparison, the integrated note category and the separate note category were predominantly recurrent. TABLE 3.25 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Regularity and Duration and Years, 1938-1963 (As percentages of t o t a l note cases i n each category) Year Recurrent Non-recurrent I F S T I F S T 1963 62 4o 72 65 38 60 28 35 1958 65 39 68 63 35 61 32 37 1953 65 32 75 63 35 68 25 37 1948 72 27 75 64 28 73 25 36 1938 70 43 61 60 30 57 39 40 A l l 68 37 71 63 32 63 29 37 Quantitative Content of the Note Cases: A Trend Analysis Table 3.26 shows that f o r the integrated note cases, since 1948, and the separate note cases since 1953? the proportion of quantitative note cases declined. No clear trend was evident i n the footnote category. I t i s s i g n i f i c a n t to observe that the separate note category was the only predominantly quantitative category of note cases, f o r the twenty-five year period under review. The integrated note category had more quantita-tive note cases i n only two years - 1948 and 1953. 89 TABLE 3.26 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Quantitative Content and Years, 1938-1963 (As percentages of t o t a l note cases i n each category) Quantitative Non-quantitative Year I F S T 1 F S T 1963 35 31 59 52 65 69 41 48 1958 k5 9^ 67 61 55 51 33 39 1953 55 3^ 70 62 45 57 30 38 1948 59 39 64 57 41 61 36 3^ 1938 63 46 55 56 37 5h k5 44 A l l 54 40 63 57 46 60 37 3^ CHAPTER IV THE INFORMATIONAL CONTENT OF THE NOTE CASES -AN INDUSTRY ANALYSIS This chapter serves to complement the preceding chapter, bringing to an appropriate end the discussion on the informational content of the notes. This chapter attempts to show the influence, i f any, that industry exerts on the informational content of the notes. S i g n i f i c a n t practices p r e v a i l i n g i n p a r t i c u l a r industries w i l l be indicated and meaningful exceptions noted. F i n a l l y , the influence of industry on the use made of the various categories of notes to disclose c e r t a i n types of information w i l l be examined. Subjects of the Note Cases The s t a t i s t i c s i n Table 4.1 show the broad classes of subjects that the notes dealt with. Each of these broad classes w i l l be analysed i n turn, i n l a t e r sections. The Table shows-that the notes i n the three indus-t r i e s of finance, i r o n and s t e e l , and public u t i l i t y were t y p i c a l l y used to provide a d d i t i o n a l information on equi-t i e s . Of these in d u s t r i e s , finance had the largest propor-t i o n of note cases r e l a t i n g to eq u i t i e s . The note cases i n the other industries were more frequently used to pro-91 vide information on subjects other than assets, non-current l i a b i l i t i e s and e q u i t i e s . TABLE 4.1 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Major Subject Classes and Industries (As percentages of t o t a l note cases i n category) Non-Current Assets L i a b i l i t i e s Equities Others Industry I F S T I F S T I F S T I F S T Finance 46 7 6 10 9 0 31 24- 9 29 4-6 39 36 64- 17 27 Forest & A l l i e d 21 7 0 7 16 18 34-" 24- 16 14- 4-2 25 4-7 61 24- 44 Iron & Steel 35 9 7 14- 6 29 18 19 28 8 48 30 31 54- 27 37 Capital 18 19 5 8 4 9 32 26 32 14 25 24 46 58 38 42 Consump-t i o n 21 12 14 14 12 12 25 19 6 4 36 26 61 28 25 41 Public U t i l i t y 27 5 13 15 8 15 19 16 19 5 k-7 3^  46 75 21 35 Service 18 5 16 15 9 17 22 20 32 7 30 27 41 71 32 38 Mis c e l -laneous 60 3 12 24 0 40 12 21 24 11 38 21 16 46 38 24 A l l 30 8 11 14 8 20 24 20 20 9 37 28 42 63 28 38 The extent to which a subject was amplified by the note cases d i f f e r e d from category to category. For example, i t i s s i g n i f i c a n t to observe that the separate note cases 92 i n s i x industries were l a r g e l y used to disclose informa-t i o n on equities. Capital and service were the two excep-tions. More integrated note cases dealt with assets than with any other subject i n the three industries of finance, i r o n and s t e e l , and miscellaneous. For the remaining f i v e i n d u s t r i e s , the prev a i l i n g practice was to use the i n t e -grated note cases to disclose a d d i t i o n a l information on subjects other than assets, non-current l i a b i l i t i e s and equ i t i e s . The p r e v a i l i n g practice i n f i v e industries was to use the footnotes more as d i r e c t i v e devices, than as des-c r i p t i v e means. This was very evident i n public u t i l i t y , finance and consumption where 59%, 57% and 56% of the foot-notes respectively were d i r e c t i v e . Of the three exceptions, miscellaneous used more of i t s footnote cases to describe l i a b i l i t i e s while.for both f o r e s t and a l l i e d and c a p i t a l , there were more footnote cases dealing with subjects other than assets, non-current l i a b i l i t i e s , equities and d i r -e c t i v e . At the other end of the scale, non-current l i a b i l i -t i e s were lea s t discussed by the integrated notes of f i v e of the in d u s t r i e s , while the separate notes i n as many as seven industries discussed assets l e a s t . A study of the footnote cases showed that assets were l e a s t discussed i n three industries, equities and 93 l i a b i l i t i e s i n two each and equities and l i a b i l i t i e s equally infrequently discussed i n the remaining industry. Asset Note Cases Table 4.2 shows that i n four industries assets that were referred to were predominantly current assets. The asset note cases i n the other four industries - finance, f o r e s t and. a l l i e d , c a p i t a l and service - l a r g e l y referred to assets other than current assets or land and f i x e d assets. TABLE 4.2 Asset Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Types of Assets and Industries (As percentages of t o t a l note cases i n each category) Current Land and ~ Assets Fixed Assets Other Assets Industry i • y T 1 F y • i F T3 T Finance 0 0 25 10 0 0 75 30 100 100 0 6o Forest & A l l i e d 25 33 0 29 25 0 0 14 50 67 0 57 Iron & Steel 63 17 43 48 12 33 57 28 25 50 0 24 Capital 25 25 29 27 0 50 42 33 75 25 29 40 Consumption 100 50 59 64 0 17 24 19 0 33 17 17 Public U t i l i t y 85 0 5 45 10 100 65 43 5 0 30 17 Service 25 0 12 12 50 50 35 38 25 50 53 50 Miscellaneous 80 100 0 72 0 0 50 6 20 0 50 22 A l l 65 28 27 41 9 32 42 29 26 40 31 30 9^ The asset integrated note cases i n four industries l a r g e l y referred to current assets. Of the remaining four i n d u s t r i e s , service used i t s asset integrated note cases l a r g e l y to deal with land and f i x e d assets. The integrated note cases i n the three other industries of finance, forest and a l l i e d , and c a p i t a l , were predominantly descriptive of assets other than current assets and land and f i x e d assets. It i s s i g n i f i c a n t to observe that the asset integrated notes i n consumption completely dealt with current assets, while those i n finance completely dealt with assets other than current assets, or land and f i x e d assets. The asset separate note cases were extensively used to discuss land and f i x e d assets In f i v e of the ind u s t r i e s . However, consumption and i r o n and s t e e l used t h e i r asset separate notes l a r g e l y to discuss current assets. On the other hand, the footnotes were larg e l y used to discuss other assets i n three industries; current assets i n two industries and other assets and land and f i x e d assets equally i n another industry. Non-current L i a b i l i t y Mote Gases Table 4-. 3 shows that the l i a b i l i t y note cases i n f i v e of the industries were predominantly used to discuss contingent l i a b i l i t i e s and commitments. These f i v e were finance, forest and a l l i e d , c a p i t a l , consumption and public u t i l i t y . 95 TABLE 4.3 Non-Current L i a b i l i t y Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Types of L i a b i l i t i e s and Industries (As percentages of t o t a l note cases i n each category) uontmgent LiaDixiti'es Long-Term Debts and Commitments  Industry I F s T I F s T Finance 100 P.. 0 4 0 0 100 96 Forest & A l l i e d 0 50 36 36 100 50 64 64 Iron & Steel 33 84 44 62 67 16 56 38 C a p i t a l 0 50 36 36 100 50 64 64 Consumption 75 100 27 38 25 0 73 62 Public U t i l i t y 33 100 29 40 67 0 71 60 Service 100 100 55 63 0 0 h5 37 Miscellaneous 0 100 50 94 0 0 50 6 A l l h5 87 3^ 46 55 13 66 5h The p r e v a i l i n g practice i n s i x industries was to use the l i a b i l i t y separate note cases f o r providing a d d i t i o n a l information on contingent l i a b i l i t i e s and commitments. The two exceptions were service and miscellaneous (the l a t t e r had, however, an equal number of separate note cases deal-ing with long-term debts as with contingent l i a b i l i t i e s and commitments). The l i a b i l i t y footnote cases i n four industries were completely descriptive of long-term debts. The footnote 96 cases i n for e s t and a l l i e d and c a p i t a l were equally des-c r i p t i v e of long-term debts and contingent l i a b i l i t i e s and commitments, while those i n i r o n and s t e e l were over-whelmingly descriptive of long-term debts. I t i s to be observed that finance d i d not have any footnote cases dealing with l i a b i l i t i e s . The integrated note cases i n four industries l a r g e l y provided further information on contingent l i a b i l i t i e s and commitments. Of the remaining four, miscellaneous was without l i a b i l i t y note cases while the other three - finance, consumption, and service - had more l i a b i l i t y footnote, cases dealing with long-term debts. Equity Mote Gases Table 4-.4- shows the breakdown of the equity note cases. The s t a t i s t i c s i n the Table show that f o r a l l categories of note cases combined, common stock was more frequently ampli-f i e d i n three i n d u s t r i e s , preferred stock i n two others, and reserves, provisions and retained earnings i n the other three i n d u s t r i e s . In a l l but one industry, the equity separate notes were l a r g e l y used to provide add i t i o n a l information on common stock. Finance, the exception, had more equity separate notes r e f e r r i n g to preferred stock. This i n t e r -esting s i m i l a r i t y of industry practice was not found i n the integrated note category or the footnote category. TABLE 4-. 4-Equity Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Types of Equities and Industries (As percentages of t o t a l note cases i n each category) Options, Reserves, Preferred Common Warrants Provisions & Stock Stock & Rights Retained Earnings Industry I F s\ T I F s T I F s T I F s T Finance o 5 0 3 3 3 * 0 0 2 7 24- 0 2 5 9 1 ° 1 0 0 2 5 3 1 3 2 Forest & A l l i e d 67 6 7 2 3 39 0 0 4-1 2 7 0 3 3 18 1 9 3 3 0 1 8 1 5 Iron & S t e e l 0 0 1 7 1 3 9 o 38 3 0 5 5 4-0 9 1 9 3 6 6 0 3 6 3 8 Capital 14- 0 1 5 14- 0 0 38 3 0 .0 6 7 1 2 14- 8 6 3 3 3 5 4-2 Consumption 5 0 0 l l 1 2 0 5 0 5 2 5 1 0 5 0 2 0 2 0 5 0 0 1 7 1 7 Public U t i l i t y 7 0 1 3 1 2 14- 0 59 51 50 5 0 1 9 24- 2 9 5 0 9 1 3 Service 0 I 6 1 5 29 67 4S h7 0 3 3 14- 57 0 2 2 24-Miscellaneous 0 0 0 0 0 0 6 7 2 5 3 3 5 0 0 2 5 6 7 5 0 3 3 5 0 A l l 1 2 2 1 1 6 1 6 1 0 1 0 4-7 4-0 2 9 4-1 1 5 1 8 4-9 28 2 2 2 6 98 The p r e v a i l i n g practice i n four industries was l a r g e l y to use the equity; integrated note cases to discuss reserves, provisions, and retained earnings further. Of the remaining four i n d u s t r i e s , i r o n and s t e e l and public u t i l i t y used t h e i r integrated notes larg e l y to discuss options, warrants and rights further, while the i n t e -grated note cases i n forest and a l l i e d expanded more on preferred stock. Of the two equity integrated note cases i n consumption, one touched on preferred stock and the other on reserves, provisions and retained earnings. The pattern was more varied f o r the equity footnote cases. Two industries - finance and forest and a l l i e d -used t h e i r note cases l a r g e l y to discuss preferred stock further. I t i s s i g n i f i c a n t to observe that none of the other industries had any footnote cases dealing further with preferred stock. The Topics of the Note Cases The note cases were c l a s s i f i e d by topics, according to t h e i r nature. Table H-.5 shows t h i s c l a s s i f i c a t i o n by i n d u s t r i e s . The s t a t i s t i c s indicate that f o r a l l categories of notes combined, the note cases i n each of the i n d u s t r i e s , without exception, were predominantly f i n a n c i a l . This predominance was most pronounced i n service and l e a s t i n i r o n and s t e e l . On the other hand, public u t i l i t y had the l a r g e s t propotion of technical note cases, followed 99 TABLE 4 . 5 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Major Topics and Industries (As percentages of t o t a l npte cases i n each category) F i n a n c i a l Technical Directive Industry I F S T I F S T I F S T Finance 27 27 74 62 64- 14- 26 29 9 57 0 9 Forest & A l l i e d 53 4-1 76 57 42 2 9 . 5 24 30 5 2 9 . 5 0 13 Iron & Steel 4-1 32 5k 44 50 33 46 43 9 35 0 13 C a p i t a l 73 47 59 59 9 29 4-1 36 18 24 0 5 Consumption 50 14 53 4-6 29 34 k? 43 21 52 0 11 Public U t i l i t y 64 15 44 46 32 26 56 45 5 59 0 9 Service 45 36 71 68 50 17 23 24- 5 47 0 8 Miscellan-eous 60 49 56 54 36 37 44 38 4 14- G 8 A l l 54 31 61 53 37 30 39 37 9 39 0 10 c l o s e l y by i r o n and s t e e l and consumption. The industry which made most use of i t s note cases f o r d i r e c t i v e pur-poses was fo r e s t and a l l i e d . In comparison, c a p i t a l had the l e a s t d i r e c t i v e note cases. The separate note cases i n a l l but one of the indus-t r i e s were predominantly f i n a n c i a l . The exception, public u t i l i t y , had more technical cases. 100 In f i v e i n d u s t r i e s , the integrated note cases were predominantly f i n a n c i a l . In the other three industries -finance, i r o n and s t e e l , and service - technical note eases outnumbered the f i n a n c i a l cases. The pattern was d i f f e r e n t f o r the footnote category. Here, f i v e industries showed a predominance of d i r e c t i v e note cases. C a p i t a l and miscellaneous each had more finan-c i a l cases, while f o r e s t and a l l i e d had an equal number of d i r e c t i v e and technical cases. F i n a n c i a l Note Cases Table 4 - . 6 shows a breakdown of the f i n a n c i a l class of note cases.into i t s four sub-classes. In each of the indus-t r i e s , without exception, elaborative cases were the most frequently occurring. The predominance of elaborative cases was most pronounced i n public u t i l i t y and l e a s t i n i r o n and s t e e l . This predominance of elaborative cases was also true of the separate notes i n each of the i n d u s t r i e s . However, fo r the separate notes, finance had the most pronounced predominance and miscellaneous l e a s t . In only f i v e industries were the footnotes predomin-antly elaborative. Of the remaining three i n d u s t r i e s , f i n a n c i a l cases other than elaborative, comparative or event de s c r i p t i v e , formed the larg e s t component i n finance and i r o n and s t e e l . C a p i t a l had an equal number of elaborative cases as of f i n a n c i a l cases other than 101 TABLE 4.6 F i n a n c i a l Note Cases C l a s s i f i e d by P r i n c i p a l Categories, F i n a n c i a l Types and Industries (As percentages of t o t a l note cases i n each category) F i n a n c i a l , F i n a n c i a l , F i n a n c i a l , Event F i n a n c i a l Elaborative Comparative Descriptive Others Industry I F s T I F' s T I F s T I F S T Finance 33 25 66 62 33 0 8 8 0 0 10 8 3^ 75 16 22 Forest & A l l i e d 50 72 45 54- 10 11 23 17 0 6 16 10 40 11 16 19 Iron & Steel 31 29 47 40 11 14 9 11 11 24 21 19 33 23 30 C a p i t a l 31 40 46 4-3 44 0 4 9 0 20 25 21 25 40 25 27 Consump-t i o n 70 86 56 59 12 0 4 5 12 14 11 11 6 0 29 25 Public U t i l i t y 81 67 51 63 4 0 14 10 2 33 10 8 13 0 25 19 Service 10 80 54 54 40 0 19 19 10 13 14 13 40 7 13 14-Misce l -laneous 60 65 44 58 13 0 0 5 27 6 12 15 0 29 44 22 A l l 56 58 53 54 16 5 11 11 7 14 15 13 21 23 21 22 elaborative, comparative and event descr i p t i v e . An examination of the integrated note category showed that i t was predominantly elaborative i n four i n d u s t r i e s ; of the remaining four i n d u s t r i e s , i r o n and s t e e l had more f i n a n c i a l cases not of an elaborative, comparative or event descriptive type. C a p i t a l was predominantly comparative, 102 while service had an equal proportion of comparative cases as of f i n a n c i a l , others. On the other hand, finance had an equal number of elaborative, comparative and f i n a n c i a l other, cases. Technical iMote Gases Technical note cases were broken down int o procedural, l e g a l and contractual, and business and economic. Table 4.7 shows the d i s t r i b u t i o n of the technical note cases by types and i n d u s t r i e s . The s t a t i s t i c s i n the Table show that each of the i n d u s t r i e s , without exception, had more procedural cases than any of the other types. This predominance of proced-u r a l note cases was most pronounced i n miscellaneous and l e a s t i n i r o n and s t e e l . The industry with the lar g e s t component of business and economic cases was service, while miscellaneous was without such cases. On the other hand, finance had the biggest l e g a l and contractual sector where-as service had the smallest. The technical integrated note cases i n three indus-t r i e s were completely procedural. In another four, they were predominantly so. Forest and a l l i e d , the exception, had an equal number of procedural and l e g a l and contractual cases. In seven i n d u s t r i e s , the separate note cases were l a r g e l y procedural. Finance, with a predominance of l e g a l and contractual note cases, represented the only exception. 1 0 3 TABLE 4.7 Technical Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Technical Topics and Industries (As percentages of t o t a l note cases i n each category) x e c n n l c a J L ^ Technical, Technical, Business & Procedural Legal & Contractual Eoonomle Industry I F S T I F S T I F S T Finance 100 5 0 3 2 5 0 0 5 0 63 46 0 0 5 4 Forest & A l l i e d 5 0 46 6 0 48 5 0 39 40 4 2 0 1 5 10 10 Iron & Steel 7k 9 49 46 17 64 4 0 4 0 9 4 n 9 C a p i t a l 100 6 2 53 5 5 0 1 3 35 3 1 0 0 12 11 Consumption 60 53 k5 k7 3 0 k7 4 0 40 10 0 1 5 1 3 Public U t i l i t y 7 0 40 44 k9 3 0 40 39 37 0 20 17 14 Service 73 2 9 6 2 60 18 7 1 17 2 3 9 0 21 17 M i s c e l -laneous 100 46 71 69 0 5k 2 9 3 1 0 0 0 0 A l l 7k 3 8 k9 51 22 48 37 37 4 6 14 11 Note: Technical audit cases were excluded from the Table. An examination of the footnote cases showed that the techn i c a l cases i n three industries were l a r g e l y procedural; those i n another three were l a r g e l y l e g a l and contractual, while i n the remaining two i n d u s t r i e s , there were an equal proportion of both types. 104 Consumption, public u t i l i t y and service had the l a r g e s t component of business and economic note cases i n the categories of integrated notes, footnotes and separate notes respectively. Audit cases were r e s t r i c t e d to within the footnote category and occurred i n only two industries -i r o n and s t e e l and c a p i t a l . Periodic Relations of the Note Cases Table 4.8 shows the c l a s s i f i c a t i o n of the note cases by periodic r e l a t i o n s and i n d u s t r i e s . The outstanding feature of the Table i s that for each industry and within each category of note cases, current cases predominated. The integrated note cases i n finance were completely current. The predominance was l e a s t pro-nounced i n the integrated note category of c a p i t a l . Generally, past cases outnumbered future cases for each category of note cases within each industry. There were three exceptions to t h i s . The footnote category of both consumption and public u t i l i t y was without past cases, but had one and two future cases respectively. Miscellan-eous had an equal number of future and past cases within the separate note category. I t i s s i g n i f i c a n t to observe that forest and a l l i e d had the biggest component of future cases. On the other hand, finance was devoid of future cases. Both finance and f o r e s t and a l l i e d had s i g n i f i c a n t components of past cases, well above the corresponding figures f o r each of 1 0 5 the other industries and f o r the survey as a whole. TABLE 4.8 Note Gases C l a s s i f i e d by P r i n c i p a l Categories, Periodic Relations and Industries (As percentages of t o t a l note cases i n each category) Current Past Future Industry I F T I F S T I F S T Finance 100 86 67 73 0 14 3 3 2 7 0 0 0 0 Forest & A l l i e d 58 57 78 64 3 2 27 20 2 5 10 16 2 11 Iron & Steel 8 3 88 7 2 79 1 3 11 19 1 5 4 1 9 6 Ca p i t a l 45 81 77 74 41 14 1 5 18 14 5 8 8 Consumption 79 98 71 77 1 5 0 19 1 5 6 2 10 8 Publi c U t i l i t y 88 9 5 75 8 2 7 0 16 11 5 5 9 7 Service 77 86 8 3 83 2 3 9 14 14 0 5 3 3 Miscellan-eous 88 83 88 86 8 11 6 9 4 6 6 5 A l l 7 9 84 76 78 1 5 1 1 17 16 6 5 7 6 Future Note Cases Future note cases were c l a s s i f i e d into two types -those with retroactive effects on the past or the current period's f i n a n c i a l p o s i t i o n or r e s u l t s of operations and those without such retroactive e f f e c t s . 106 Table 4.9 shows each of the industries (with the ex-ception of finance) as having more non-retroactive future note cases than ret r o a c t i v e note cases, f o r a l l categories of notes combined. The future cases i n service and mis-cellaneous were completely non-retroactive. In comparison, pu b l i c u t i l i t y had the largest component of future r e t r o -active cases. TABLE 4.9 Future Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Future Types and Industries (As percentages of t o t a l note cases i n each category) Retroactive Non-retroactive Industry I F S T I F s T Finance 0 0 0 0 0 0 0 0 Forest & A l l i e d 50 1 4 0 20 50 86 0 80 Iron & Steel 50 100 11 25 50 0 89 75 C a p i t a l 33 0 9 13 67 100 91 87 Consumption 0 100 33 33 100 0 67 67 Public U t i l i t y 75 0 43 45 25 100 57 55 Service 0 0 0 0 0 100 100 100 Miscellaneous 0 0 0 0 100 100 100 100 A l l 3^ 19 23 25 57 71 77 75 The future separate note eases i n each of the applies able industries were either completely or predominantly 107 non-retroactive i n e f f e c t s . However, the future footnote cases i n i r o n and s t e e l and consumption were completely retroactive i n e f f e c t s . For the integrated notes category, the future cases i n public u t i l i t y l a r g e l y had retroactive e f f e c t s , while those i n both f o r e s t and a l l i e d and i r o n and s t e e l were equally retroactive and non-retroactive i n e f f e c t s . Regularity of the Mote Cases The s t a t i s t i c s i n Table 4.10 show a predominance of recurrent cases i n each of seven of the industries - i r o n and s t e e l being the exception. The separate note cases i n each of the in d u s t r i e s , without exception, were l a r g e l y recurrent. The same was true of the integrated notes category. The outstanding exception was the footnote category. This, i n t o t a l and f o r each of s i x of the in d u s t r i e s , was la r g e l y non-recurrent. The two industries whose footnotes were predominantly recurrent were fo r e s t and a l l i e d and c a p i t a l . Quantitative Content of the Rote Cases The note cases were c l a s s i f i e d as to whether they were l a r g e l y quantitative or non-quantitative i n content. The s t a t i s t i c s i n Table 4.11 show that the note cases i n each of seven of the industries were la r g e l y quantitative -public u t i l i t y being the exception. 1 0 ? a TABLE 4.10 Note Cases C l a s s i f i e d by P r i n c i p a l Categories, Regularity and Duration and Industries (As percentages of t o t a l note cases i n each category) Recurrent Non-recurrent Industry I F S T I F S T Finance 8 2 2 9 8 6 7 7 1 8 7 1 14 2 3 Forest & A l l i e d 74 5 9 7 3 6 7 2 6 41 2 7 3 3 Iron & Steel 5 2 3 7 6 2 K9 kQ 7 3 3 8 51 C a p i t a l 6 8 6 2 6 7 6 7 3 2 3 8 3 3 3 3 Consumption 5 9 24 7 6 6 5 41 7 6 24 3 5 Public U t i l i t y 7 8 28 66 64 22 7 2 34- 3 6 Service 59 40 6 9 64 41 6 0 3 1 3 6 Miscellaneous 7 6 40 8 1 6 0 24 6 0 19 40 A l l 6 8 3 7 7 1 6 3 3 2 6 3 2 9 3 7 Only one industry had separate note cases that were not l a r g e l y quantitative. This industry, miscellaneous, had an equal number of quantitative note cases and non-quantitative note cases. Five of the industries had integrated note cases that were l a r g e l y quantitative - the three exceptions being finance, c a p i t a l and public u t i l i t y . In comparison, the footnote cases i n only one industry were l a r g e l y quantita-t i v e - miscellaneous. A l l other industries showed a pre-dominance of non-quantitative note cases. 1 0 8 TABLE 4.11 Note Cases C l a s s i f i e d by P r i n c i p a l C a t e g o r i e s , Q u a n t i t a t i v e C o n t e n t and I n d u s t r i e s (As p e r c e n t a g e s o f t o t a l n o t e c a s e s i n each c a t e g o r y ) Q u a n t i t a t i v e N o n - q u a n t i t a t i v e I n d u s t r y I F S T I F S T F i n a n c e 4 5 2 9 57 5 2 5 5 7 1 4 3 48 F o r e s t & A l l i e d 6 3 .48 78 6 3 3 7 5 2 22 3 7 I r o n & S t e e l 7 4 44 6 3 6 0 2 6 5 6 37 40 C a p i t a l 41 3 8 64 58 5 9 6 2 3 6 42 Consumption 6 4 3 2 53 5 2 3 6 6 8 4 7 46 P u b l i c U t i l i t y 3 0 2 3 6 2 48 7 0 7 7 3 8 5 2 S e r v i c e 5 5 3 3 7 3 66 4 5 6 7 2 7 3 4 M i s c e l l a n e o u s 64 7 3 5 0 6 2 3 6 2 7 5 0 3 8 A l l 5 ^ 40 6 3 5 7 46 60 3 7 4 3 CHAPTER V THE FORMAT OF THE NOTES-A TREND ANALYSIS The r e a d a b i l i t y of a note i s greatly affected by the way i t i s presented. This can materially add to or s i g n i f i c a n t l y detract from the usefulness of a note. This chapter, and the one following, discusses the format of the notes. This chapter attempts to show the changes i n 'the pres-entation of notes that occur during the period under review. The trend analysis w i l l be for each category of notes, as well as f o r a l l notes taken together, i r r e s p e c t i v e of the categories to which the notes may belong. Arrangement of the Notes A b r i e f look at the notes to f i n a n c i a l statements indicated that there were two ways of placing the notes. These could either be presented i n two or more columns or they could be presented i n a l i n e a r fashion, running from the l e f t margin of the page to the r i g h t margin. Table 5.1 shows that of the 1207 notes, s l i g h t l y more than a thousand were presented l i n e a r l y . However, there seemed to be a growing practice towards presenting the notes columnarly. 110 TABLE 5.1 Notes C l a s s i f i e d by P r i n c i p a l Categories, Arrangement and Years, 1938-1963 (As percentages, of t o t a l notes i n each category). Linear Columnar Year .1 F S T I F S T 1963 100 97 68 77 0 3 32 23 1958 100 99 81 88 0 1 19 12 1953 100 98 85 91 0 2 5 9 1948 100 98 91 95 0 2 9 5 1938 100 90 100 97 0 10 0 3 A l l 100 97 77 87 0 3 23 13 An outstanding feature of the Table i s the disclosure that a l l integrated notes were presented l i n e a r l y for the twenty-five year period under review. The proportion of footnotes that was presented l i n e a r l y remained r e l a t i v e l y constant, at a high l e v e l , over the years. I t i s also evident from the Table that the trend, over the years, was towards presenting the separate notes columnarly. Location of the Notes Since integrated notes were defined as those notes placed within the f i n a n c i a l statements, and footnotes were defined as notes appended to the f i n a n c i a l statements, i t i s s i g n i f i c a n t to see the types of f i n a n c i a l statements that I l l included these categories of notes. However, the analysis of the separate notes i n terms of t h e i r l o c a t i o n required a d i f f e r e n t treatment. For th i s category of notes, i t becomes more meaningful to study the l o c a t i o n of the separ-ate statements within the Annual Report, rather than the l o c a t i o n of the i n d i v i d u a l separate notes. Table 5*2 shows that i n the aggregate, an overwhelm-ing number of integrated nots were found i n the Balance Sheet. (For examples, see Notes No. 01-13 i n Appendix B.) Only 6% were found i n other statements. Of these, the Income Statement had more integrated notes inserted. On the other hand, not as many footnotes were appended to the Balance Sheet as were the integrated notes, though the Balance Sheet s t i l l contained a predominant number of the footnotes. (For examples, see Notes No. 14-17 i n Appendix B.) A sizeable proportion of the footnotes were also attached to the Income Statement. (For examples, see Notes No. 18-20 i n Appendix B.) A few were also appended to the Source and Application of Funds Statements. In contrast, none of the integrated notes was found i n t h i s statement. The s t a t i s t i c s also indicate that the practice of i n s e r t i n g integrated notes i n f i n a n c i a l statements other than the Balance Sheet was gaining acceptance over the years under review. However, t h i s increase was very s l i g h t . In comparison, a sim i l a r trend towards appending footnotes to f i n a n c i a l statements other than the Balance Sheet was strong and d i s t i n c t . Increasingly, over the 112 TABLE 5.2 Location of Integrated Notes and Footnotes, By Years, 1938-1963 (As per centages of t o t a l notes i n each category i n each year) F i n a n c i a l Integrated Notes Footnotes Statement 1963 1958 1953 1948 1938 A l l 1963 1958 1953 1948 1938 A l l Balance Sheet 91 90 96 93 96 93 48 56 58 59 76 56 Income Statement 3 10 4 3 2 4 21 28 24 34 18 25 Retained Earnings 3 0 0 2 0 1 13 11 7 5 0 9 Income & Retained Earnings 3 0 0 0 0 1 12 4 7 2 3 7 Surplus Statement 0 0 0 2 2 1 2 0 2 0 3 1 Source & Application of Funds 0 0 0 0 0 0 4 1 2 0 0 2 years, footnotes were appended to the Statement of Retained Earnings, the Statement of Income and Retained Earnings and the Statement of Source and Application of Funds. Table 5.3 indicates that, i n the aggregate, the state-ments of notes were t y p i c a l l y located on separate pages, aft e r the set of f i n a n c i a l statements, and without any intervening material. However, since 1948, th i s practice was on the decline. 113 TABLE 5.3 Location of Statements of Notes, By Years, 1938-1963 (Figures i n brackets are percentages of t o t a l statements i n each year) Statements Located 1963 1958 1953 1948 1938 A l l On separate pages 15(34) 16(50) immediately a f t e r set of f i n a n c i a l statements On separate pages before set of f i n a n c i a l statements On separate pages between set of f i n a n c i a l statements On same pages as one or more of set of f i n a n c i a l statements Elsewhere 9(64) 5(72) 1(50) 46(47) 1(2) 1(3) 0(0) 1(0) 0(0) 3(3) 4(9) 1(3) 0(0) 0(0) 1(50) 6(6) 3(7) 3(9) 0(0) 0(0) 0(0) 6(6) 21(48) 11(35) 5(36) 1(14) 0(0) 38(38) Note: "Elsewhere" includes statements placed a f t e r the set of f i n a n c i a l statements but with other informational mater-i a l intervening between the l a s t f i n a n c i a l statement of the set and the statement of notes. I t i s s i g n i f i c a n t to point out that three statements were located i n the Annual Report before the set of f i n a n c i a l state-ments, while s i x others were placed between two f i n a n c i a l state-ments . 114-P o s i t i o n of the Notes; Indention from the L e f t .Margin This section deals with one of the three aspects i n the analysis of the p o s i t i o n of the notes. The other two aspects - relationship of the notes to the r i g h t margin and the s p a t i a l separation of the notes - are discussed i n the two preceding sections. Notes could be printed beginning at the l e f t margin of the page d i r e c t l y underneath the f i n a n c i a l statement items. (See, f o r example, Note Nos. 18-20 i n Appendix B.) Or, the notes could be indented, which practice would improve the r e a d a b i l i t y of the notes. (See, f o r example, Note Nos. 26-29 and 01-13 i n Appendix B.) The notes were centred across the page c l e a r l y distinguishing them from the f i n a n c i a l statement items. (See, f o r example, Note No. 21 and No. 4-7 i n Appendix B.) Table 5«4- shows that f o r a l l categories of notes com-bined, the notes predominantly began at the l e f t margin. Only a quarter were indented or eentred.. I t i s more s i g -n i f i c a n t to observe the d i s t i n c t trend towards an Increase i n the proportion of notes which began at the l e f t margin. The need to indent the notes i s obviously greater with the integrated notes. This was r e f l e c t e d i n the Table. As of 1963» fo r example, 70% of the integrated notes were indented or centred. More s i g n i f i c a n t l y , past years' f i g u r e s showed a growing acceptance of indenting the i n t e -grated notes. 115 TABLE 5.4 Notes C l a s s i f i e d by P r i n c i p a l Categories, Indention from L e f t Margin of Page and Years, 1 9 3 8 - 1 9 6 B (As percentages of t o t a l notes i n each category) Notes Which Began Notes Indented Notes Centred at Le f t Margin on Page from Le on f t Margin Page Page?! ross Pages Year I F s T I F S T I F ; S T 1 9 6 3 3 0 7h 1 0 0 8 8 6 7 1 6 0 9 3 1 0 0 3 1 9 5 8 2 6 56 1 0 0 8 0 7 4 2 0 0 14 0 24 0 6 1 9 5 3 28 5 0 1 0 0 6 9 7 2 28 0 2 5 0 2 2 0 6 1 9 4 8 27 51 1 0 0 6 2 7 3 2 5 0 3 2 0 24 0 6 1 9 3 8 1 9 5 0 1 0 0 h7 7 9 3 3 0 48 2 1 7 0 5 In comparison, the proportion of indented footnotes seemed to decline over the years under review. I t i s also relevant to observe that none of the separate notes was i n -dented. I t i s evident from the Table, too, that the practice of centering the notes was more accepted f o r the footnote category than f o r the integrated note category. P o s i t i o n of the Notes: Relationship to the Right Margin The second aspect of the p o s i t i o n of the notes i n -volved a consideration of how f a r away from the money c o l -umns (which formed the r i g h t margin of the page) the notes were terminated. Two classes were distinguished - notes 1 1 6 which terminated beneath the money columns (see, f o r ex-amp l e Notes No. 0 1 - 1 3 i n Appendix B) and notes which were terminated some distance from the money columns (see, f o r example, Notes No. 14 -20 i n Appendix B). The s t a t i s t i c s i h Table 5 » 5 indicate that the prac-t i c e of terminating the notes at the r i g h t margin of the page was prevalent. This was also gaining popularity throughout the period under review. More s i g n i f i c a n t i s that t h i s increase was at an increasing rate. TABLE 5 . 5 Notes C l a s s i f i e d by P r i n c i p a l Categories, Relationship to Right Margin of Page and Years, 1 9 3 8 - 1 9 6 3 (As percentages of t o t a l notes i n each category) Notes Ending Some Notes Ending at Distance from Right Right Margin of Margin of Page Page  Year I F S T I F s T 1 9 6 3 8 9 h7 0 1 9 1 1 5 3 1 0 0 81 1 9 5 8 8 7 5 6 0 2 5 1 3 44- 1 0 0 7 5 1 9 5 3 8 1 5 7 0 3 ^ 1 9 1 0 0 6 6 1 9 4 8 8 5 5 9 0 M-5 1 5 4-1 1 0 0 5 5 1 9 3 8 7 6 4-7 0 5 0 24- 5 3 1 0 0 5 0 A l l 8 3 5 3 0 2 9 1 7 4-7 1 0 0 7 1 An outstanding exception to thi s was the integrated notes category. The notes here were t y p i c a l l y terminated 117 some distance from the r i g h t margin. This practice was gaining acceptance over the years under review. On the other hand, there seemed to be a slow decline, since 1948, i n the proportion of footnotes which ended some distance from the r i g h t margin. This footnote cate-gory occupied an Intermediate p o s i t i o n between the separ-ate note category ( a l l the notes within terminating at the r i g h t margin) and the integrated note category (very few of the notes within terminating at the r i g h t margin). P o s i t i o n of the Notes; Sp a t i a l Separation The t h i r d aspect of the p o s i t i o n of the notes i n -volved a consideration of the v e r t i c a l i n t e r v a l between the notes and the f i n a n c i a l statement items or between two succeeding notes (as i n the ease of the footnotes and the separate notes). Table 5 . 6 also shows some other methods of distinguishing the notes. A very large propotion of the notes was s p a t i a l l y separated. I t Is evident from the Table that there was a growing acceptance of the practice of s p a t i a l l y separating the notes. However, th i s increase was at a decreasing rate as the following summary shows: Year 1948 1953 1958 1963 % Increase over previous year of notes s p a t i a l l y separated 31 15 11 0.4 However, i t i s more meaningful to study the integrated', notes category, because notes i n t h i s category were placed 1 1 8 next to the related f i n a n c i a l statement items. The need f o r s p a t i a l separation was greater here. TABLE 5 . 6 Notes C l a s s i f i e d by P r i n c i p a l Categories, ' Spatial Separation and Years, 1 9 3 8 - 1 9 6 3 (As percentages of t o t a l notes i n each category) Use of Extra Spacing from Separated by Not Parentheses Statement Items Bold Lines Separated Year I F S T I F S T I F s T I F s T 1 9 6 3 3 0 1 0 3 4-0 8 8 1 0 0 9 2 1 9 2 0 2 1 1 9 . 0 3 1 9 5 8 2 3 3 0 4 6 2 8 9 9 9 9 1 3 1 0 I 1 1 1 2 8 0 4 1 9 5 3 2 6 7 0 8 48 8 0 1 0 0 8 3 0 0 0 0 2 6 1 3 0 9 1 9 4 8 2 6 14 0 1 3 4-6 6 6 1 0 0 7 2 0 0 0 0 28 2 0 0 1 5 1 9 3 8 3 1 0 0 1 5 2 4 6 7 1 0 0 5 5 2 0 0 1 4 3 3 3 0 2 9 A l l 2 7 4 0 6 4 4 8 2 1 0 0 2 8 5 4 1 0 1 2 5 1 3 0 8 Note: 1 . Includes a note that i s enclosed In a box. 2 . Not exactly 1 0 0 - e f f e c t of rounding. The s t a t i s t i c s i n the Table indicate an improvement i n the practice of s p a t i a l l y separating the integrated notes. U n t i l 1 9 5 8 , there was a s h i f t i n the use of parentheses to the use of extra-spacing. There also seemed to be an i n -crease i n the use of bold l i n e s to di s t i n g u i s h the i n t e -grated notes. In passing, attention i s c a l l e d to the two notes which were enclosed i n boxes. Both arose i n 1 9 5 8 . 1 1 9 Length of Notes The notes were divided into four classes by length. Notes with less than three printed l i n e s each were con-sidered short; those with between 4 - 9 l i n e s , 1 0 - 2 5 and more than 2 5 l i n e s per note were considered medium, long and very long notes respectively. In the aggregate, short notes predominated i n each of the years under review. However, the tendency over the years was to make the notes longer, as Table 5 . 7 shows. TABLE 5 . 7 Notes C l a s s i f i e d by Categories, Length of Notes and Years, 1 9 3 8 - 1 9 6 3 (As percentages of t o t a l notes i n each category) Short: Medium: Long Very Long;More 1-3 Lines 4-9 Lines 10-25 Lines than 25 Lines Year I F S T I F S T I F s T I F s T 1 9 6 3 9 5 84 1 5 3 9 5 1 5 4 3 3 3 0 1 3 3 2 2 0 0 9 6 1 9 5 8 8 2 8 2 1 7 41 1 3 1 7 4-5 34- 5 1 3 0 2 0 0 0 8 5 1 9 5 3 8 1 8 3 1 6 5 0 1 9 1 5 40 28 0 2 3 2 1 6 0 0 1 2 6 1948 7 5 78 1 7 53 2 0 2 0 3 6 2 6 5 2 3 5 1 6 0 0 1 2 5 1 9 3 8 7 0 7 0 1 8 57 3 0 3 0 3 2 3 1 0 0 2 1 5 0 0 29 7 A l l 7 9 8 1 1 6 h5 1 9 18 42 3 1 2 1 3 2 1 8 0 0 1 0 6 The predominance of short notes was most evident i n the integrated notes category. In each of the years, more 120 than 70$ of the integrated notes were short. The practice of keeping the integrated notes short was gaining, acceptance so that by 1963. only 5$ of the integrated notes exceeded 3 l i n e s each and none was more than 9 l i n e s . S i m i l a r l y , the trend i n the footnote category was towards short notes. The proportion of long notes declined between 1948-1963. This category had a larger proportion of medium notes than the integrated note category. As i s to be expected, only the separate note category had very long notes. The trend showed a s h i f t from short and very long separate notes to medium and long notes. Typography of Notes Notes could be distinguished from the f i n a n c i a l state-ment items by variati o n s i n type. These variations were i n the size of the p r i n t s (larger or smaller r e l a t i v e to that of the f i n a n c i a l statement items -,see, f o r example, Notes No. 18-20 i n Appendix B), style of p r i n t s ( i t a l i c s or capi-t a l s 4 s e e , f o r example, Notes No. 22-25 i n Appendix B), weight of pr i n t s (darker or l i g h t e r r e l a t i v e to that of the f i n a n c i a l statement items). The s t a t i s t i c s i n Table 5.8 show that i n the aggre-gate, the notes were predominantly not distinguished by var i a t i o n s i n type. However, f o r the notes taken as a whole, no clear trend arose. The need f o r d i f f e r e n t i a t i n g the notes i s obviously greater f o r the integrated notes. This was r e f l e c t e d i n 121 TABLE 5.8 Notes C l a s s i f i e d by P r i n c i p a l C a t e g o r i e s , Typography and Y e a r s , 1938-1963 (As percentages of t o t a l notes i n each ca tegory) D i f f e r e n t i a t e d D i f f e r e n t i a t e d D i f f e r e n t i a t e d U n d i f f e r e n - by s m a l l e r by s m a l l e r and by o ther v a r i a -Year t i a ^ e d p r i n t s l i g h t e r p r i n t s t i o n s i n type I F S T I F S T I F S T I F S T 1963 21 45 62 63 39 21 18 20 21 7 14 4 19 27 6 13 1958 31 59 87 73 43 20 9 17 8 7 4 5 13 14 0 5 1953 38 54 48 59 45 15 52 29 2 9 0 3 15 22 0 9 1948 36 49 85 58 39 10 6 19 15 14 9 13 10 21 0 10 1938 59 47 100 69 11 10 0 8 22 20 0 16 8 13 0 7 A l l 39 51 80 64 35 17 15 20 14 10 2 7 12 22 3 9 the T a b l e , which shows t h a t 60$ of the i n t e g r a t e d notes were d i f f e r e n t i a t e d by v a r i a t i o n s i n t y p e , as compared to f i g u r e s of 49$ and 20$ f o r the f o o t n o t e category and the separate note ca tegory r e s p e c t i v e l y . The s t a t i s t i c s show a slow l o n g r u n i n c r e a s e i n the p r o -p o r t i o n of f o o t n o t e s t h a t were not d i s t i n g u i s h e d by v a r i a t i o n s i n t y p e . S i m u l t a n e o u s l y , there seemed to be growing accep-tance of the p r a c t i c e of d i f f e r e n t i a t i n g the f o o t n o t e s by p r i n t i n g them i n s m a l l e r p r i n t . I n 1938, a l l separate notes were not d i f f e r e n t i a t e d . S ince t h e n , the p i c t u r e had changed, though no c l e a r t r e n d emerged. 122 Use of Descriptive T i t l e s , Captions or Formal Headings Some notes were introduced by descriptive t i t l e s , captions or formal headings i n d i c a t i n g what they were. (See, f o r example, Notes No. 14-17 i n Appendix B.) Both footnotes and separate notes were t y p i c a l l y introduced by captions and formal headings such as "Footnotes to Finan-c i a l Statement (type s p e c i f i e d ) " or "Statement of Notes to F i n a n c i a l Statements." However, t h i s did not q u a l i f y the notes f o r c l a s s i f i c a t i o n as being introduced by descrip-t i v e t i t l e s , captions or formal headings. Only when within the statement of notes or group of footnotes, there was found a descriptive t i t l e or an addit i o n a l caption or an additi o n a l formal heading, c l e a r l y i n d i c a t i n g the status of the notes, would the notes be c l a s s i f i e d as being i n t r o -duced by descriptive t i t l e s , captions or formal headings. Table 5.9 shows that i n each of the years notes with-out descriptive t i t l e s , captions or formal headings pre-dominated. Over the years, the s t a t i s t i c s indicate a long-run increase i n the proportion of such notes. Con-commitant with t h i s was the decrease, over the years, i n the proportion of notes introduced by descriptive t i t l e s . As of 1963) almost a l l integrated notes were without descriptive t i t l e s , captions or formal headings. Past years' figures showed a trend towards more of these notes. I t i s s i g n i f i c a n t to observe that the practice of i n t r o -ducing the integrated notes by captions and formal headings had died out. 1 2 3 TABLE 5 . 9 Notes C l a s s i f i e d by P r i n c i p a l Categories, Use of Descriptive T i t l e s , Captions, or Formal Headings and Years, 1 9 3 8 - 1 9 6 3 (As percentages of t o t a l notes i n each category) Introduced by Introduced by Descriptive Captions and Notes Not T i t l e s Formal Headings Introduced Year I F S T I F S T I F s T 1 9 6 3 3 3 2 1 5 18 0 3 0 1 9 3 6 5 8 5 8 1 1 9 5 8 1 0 3 9 18 2 9 0 6 0 1 3 9 0 5 5 7 2 58 1 9 5 3 1 7 3 6 2 6 . . 2 6 9 7 0 4- 7h 57 7M- 7 0 1 9 H 8 2 0 ¥ f 1 7 24- 2 1 7 0 1 0 5 9 K9 8 3 6 6 1 9 3 8 3 1 '4-0 3 9 3 6 2 1 3 0 5 6 7 4-7 6 1 5 9 A l l 18 37 21 24- 7 6 0 3 7 5 57 7 9 7 3 The separate notes were predominantly not introduced by descriptive t i t l e s , captions or formal headings. How-ever, no clear trend was evident. On the other hand, the Table shows a clear trend towards not introducing footnotes by descriptive t i t l e s , captions or headings. The Keying of Notes Keying referr e d to the pra c t i c e of d i r e c t i n g the statement reader's attention to the need to read a note or notes i n conjunction with a s p e c i f i c f i n a n c i a l statement item. The study showed that four devices were used f o r lac-keying purposes - d e s c r i p t i v e wordings (see, f o r example, Notes No. 26 and 27 i n Appendix B), asterisks (Note No. 5 2 ) , daggers (Note No. 55) and parentheses (Note No. 5 8 ) . The s t a t i s t i c s i n Table 5.10 show that i n the aggre-gate, 60$ of the survey notes were not keyed. Past years* figures indicated an improvement i n the practice of keying the notes, p r i n c i p a l l y by the use of descriptive wordings (for example, "See Note 1"). Though the trend indicated a growing practice of keying the notes by descriptive word-ings, the increase since 1953 was at a decreasing rate, as the following summary suggests: 1948 1953 1958 1963 % Increase over previous year i n proportion of notes keyed by descriptive wordings 64 66 39 12 I t i s also s i g n i f i c a n t to observe that the use of a s t e r i s k s , as a keying device, was getting out of fashion. T h e o r e t i c a l l y , the need to key the notes i s greatest with the separate notes. That t h i s was recognized and practised by the survey companies, i s indicated by the Table. However, the Table also shows that t h i s recog-n i t i o n was of a recent date (1953). Before t h i s year, more of the separate notes were not keyed. This improvement i n practice i s encouraging. The increase was, however, at a decreasing rate. The integrated notes and the footnotes were predom-ina n t l y not keyed. This predominance was more pronounced f o r the integrated notes where consistently f o r each of 125 TABLE 5.10 Notes C l a s s i f i e d by P r i n c i p a l Categories, Mechanics of Keying and Years, I938-I963 (As percentages of t o t a l notes i n each category) Year I F S Not Keyed T I T S T Keyed by Descriptive Jtforclings I Keyed by Asterisks F S Keyed by Daggers or F S T I T 1963 97 77 34 50 3 17 66 49 0 6 0 1 0 0 0 0 1958 92 83 37 55 3 13 63 44 5 3 0 1 0 1 0 0 1953 96 76 43 65 2 11 57 31 2 13 0 4 0 0 0 0 1948 98 88 58 69 0 10 42 19 2 2 0 12 0 0 0 0 1938 98 87 61 69 0 7 39 12 2 3 0 18 0 3 0 1 A l l 97 81 39 61 1 12 61 37 2 6 0 2 0 1 0 a Note: "a" - less than half a percent. the years, more than 90$ of the notes were not keyed. On the other hand, the trend was towards an improve-ment i n the proportion of footnotes that were keyed. There was a growing acceptance of keying the footnotes by descrip-t i v e wordings, f o r the 25 year period under review. In passing, i t i s relevant to observe that a s t e r i s k s , as a keying device, was more frequently used f o r the foot-notes than the integrated notes. The practice of using daggers and parentheses was r e s t r i c t e d to the footnote category. 126 Style of Keying of Notes The study showed that there was a variety of styles of keying the notes. Some notes were each keyed to only one f i n a n c i a l statement item; others were each keyed to two f i n a n c i a l statement items; s t i l l others were each keyed to three or more f i n a n c i a l statement items. There were instances when two notes were keyed to the same finan-c i a l statement item and even where three or more notes were keyed to the same f i n a n c i a l statement item. The terms used to designate each of these situations were single keying, double keying, multiple keying, joint.keying and shared keying respectively. Table 5.11 shows that of a l l keyed notes, single key-ing was the most prevalent, i n each category of notes, as well as for a l l categories of notes combined. The s t a t i s -t i c s further indicate that u n t i l 1958» the practice of single-keying the notes was gaining ground. Almost a l l the keyed integrated notes were single keyed. The only exception occurred i n 1953? when one note was multiple keyed. On the other hand, multiple keying, as well as shared keying, was not used f o r the footnote cate-gory at a l l . 1963 saw the f i r s t two footnotes that were j o i n t l y keyed. In comparison, the separate note category used a l l the various devices of keying notes. 1 2 7 TABLE 5 . 1 1 Keyed Notes C l a s s i f i e d by P r i n c i p a l Categories, Style of Keying and Years, 1 9 3 8 - 1 9 6 3 (As percentages of t o t a l notes i n each category) Single Double Multiple Joint/Shared Keying Keying Keying Keying Year I F S T 1 F S T I F S T I F s T 1 9 6 3 3 1 5 4-2 3 2 0 3 1 6 1 1 0 0 2 1 0 6 6 5 1 9 5 8 8 1 7 4-7 3 5 0 0 1 1 7 0 0 3 2 0 0 3 2 1 9 5 3 2 1 9 4-1 2 5 0 4- 1 2 7 2 0 3 2 0 0 1 a 1 9 4 8 2 1 2 3 9 1 9 0 0 0 0 0 0 3 1 0 0 0 0 1 9 3 8 2 1 3 2 1 1 0 0 0 7 2 0 0 4- 1 0 0 7 2 A l l 3 1 5 4-2 28 0 2 1 2 7 a 0 3 2 0 2 4- 3 Note: "a" - les s than half a percent. Use of Cross References i n Notes In examining the notes, i t was found that some notes contained references to other notes, or to a f i n a n c i a l state ment, or to the Annual Report i n general or to a s p e c i f i c page. Sometimes, too, references were made to other d i s -closure devices, such as, the President's Report. These notes were c l a s s i f i e d as notes with cross references (see, for example, Notes No. 53 and 54- i n Appendix B). The s t a t i s t i c s i n Table 5 . 1 2 show that the practice of enclosing cross references i n the notes was not preva-1 2 8 l e n t . Only 1 3 $ of a l l notes contained cross references, Since 1 9 5 3• t h i s practice had decreased. TABLE 5 . 1 2 Notes C l a s s i f i e d by P r i n c i p a l Categories, Use of Cross References and Years, 1 9 3 8 - 1 9 o 3 (As percentages of t o t a l notes i n each category) Reference to Note/ Statement Reference to Annual Report/ F i n a n c i a l Reference to S p e c i f i c Notes Without Cross Year of Notes Statement Page Reference I F s T 1 F S T I F S T I F S T 1 9 6 3 1 9 2 4 0 7 0 5 3 a 0 1 0 1 a 8 1 6 1 9 6 9 2 1 9 5 8 18 14 0 6 0 4 5 4 0 1 1 2 4 8 2 7 1 9 3 8 6 1 9 5 3 1 2 9 0 5 0 1 3 1 1 9 0 7 0 2 8 8 7 1 8 9 8 6 1 9 4 8 0 1 2 0 3 0 1 7 0 4 0 7 0 2 1 0 0 64 1 0 0 9 1 1 9 3 8 0 0 0 0 2 2 3 0 7 0 7 0 2 98 7 0 1 0 0 9 1 A l l 8 1 5 0 5 a 1 0 4 5 0 9 1 3 9 1 66 9 5 8 7 Note: "a" - less than half a percent. Quite a d i f f e r e n t picture arose i n the integrated note category. Here, u n t i l 1 9 4 8 , a l l notes did not contain cross references. Since then, there was a growing practice of enclos-ing cross references i n these notes. However, t h i s growth was at a decreasing rate. I t i s s i g n i f i c a n t to observe that with one exception a l l cross references here were only made to other notes or the statements of notes. In 1 9 3 8 , one integrated 129 note contained an advice to study the Annual Report. I t i s evident from the Table that the footnotes cate-gory contained more cross references than either of the other two categories. Here, cross references were also made to the f i n a n c i a l statement, and a s p e c i f i c a l l y men-tioned page of the Annual Report, i n addition to the other notes. Between 1938 and 1958, the trend was towards a de-crease i n the proportion of footnotes, making reference to the f i n a n c i a l statement. S i m i l a r l y , the proportion of separate notes with cross references to the f i n a n c i a l statements had decreased since 1953« l n t h i s category, the practice of cross r e f e r -encing the notes was used very infrequently. Form of the Motes The study revealed that some notes were presented i n the form of tables (see, f o r example, Note, No. 09 i n Appendix B); others were s t r i c t l y discourse (or n a r r a t i v e ) . In between, there were notes which were p a r t i a l l y tabular and p a r t i a l l y narrative. The s t a t i s t i c s of Table 5.13 indicate that the notes were predominantly narrative i n form and u n t i l 1958, the practice of presenting the notes i n a narrative form was growing. The predominance of narrative notes was also evident for each of the categories of notes, though f o r the separ-ate notes, th i s predominance was not manifest u n t i l 1953. 130 TABLE 5.13 Notes C l a s s i f i e d by P r i n c i p a l Categories, Form and Years, 1938-1963 (As percentages of t o t a l notes i n each category) Year Tabular Tabular/Di s c our s e Discourse I F s T I F S T I F S T 1963 16 9 19 16 8 5 9 8 76 86 73 76 1958 8 10 20 15 15 6 6 8 77 84 74 77 1953 15 19 27 21 13 9 5 8 72 72 68 71 1948 5 8 39 19 16 17 11 14 79 75 50 67 1938 11 10 61 23 19 13 0 13 70 77 39 64 A l l 10 11 24 18 15 8 7 9 75 81 69 73 Since 1953 also, the practice of presenting the i n t e -grated notes and the footnotes i n a complete or p a r t i a l tabu-l a r form declined. Past years' figures showed a d i s t i n c t decrease i n the proportion of separate notes that was pre-sented i n a tabular form. The decrease was, however, at a decreasing rate as the following summary shows: 1948 1953 1958 1963 % Decrease over previous year i n proportion of separate notes that was tabular i n form 35 33 26 4 131 Numbering the Notes Numbering the notes (or l e t t e r i n g them) f a c i l i t a t e d making cross references (see, for example, Notes No. 14-17 i n Appendix B). In addition, i t c l e a r l y indicated where one note ended and another started. Table 5.14 shows that the practice of numbering the notes was used i n half of the notes. More encouraging was the growing acceptance of the practice between 1938 and 1958. TABLE 5.14-Notes C l a s s i f i e d by P r i n c i p a l Categories, the Extent of Numbering and Years, 1938-1963 (As percentages of t o t a l notes i n each category) Notes Numbered Notes Not Numbered Year I F S I F S T 1963 0 14- 88 63 100 86 12 37 1958 3 15 89 66 97 85 11 34 1953 6 0 84- 4-2 94 100 16 58 1948 21 5 71 37 79 95 29 63 1938 4- 7 39 13 96 93 61 87 A l l 8 10 84- 51 92 90 16 4-9 The s t a t i s t i c s also show that while the separate notes were predominantly numbered, the reverse was true of the integrated notes and the footnotes. Since 1953 > the trend 132 was towards not numbering the integrated notes. On the other hand, the practice of numbering the separate notes became more prevalent from 1938 to 1958. Since then, the proportion dropped s l i g h t l y . CHAPTER VI THE FORMAT OF THE NOTES -AN INDUSTRY ANALYSIS This chapter brings to a close the discussion, began i n the preceding chapter, on the format of the notes. I t attempts to show the influence of industry on the pres-entation and form of the notes. The type of industry may a f f e c t the format of the notes i n a l l categories equally or may a f f e c t only one cate-gory, leaving the notes i n the other categories unaffected. A l t e r n a t i v e l y , i t may a f f e c t the format of the notes i n one category more than that of the notes i n the other categories. The chapter w i l l attempt to throw some l i g h t on t h i s . In addition, p r e v a i l i n g practices i n each indus-try w i l l be discussed and s i g n i f i c a n t exceptions noted. In the f i n a l analysis the practices that e x i s t i n each industry r e f l e c t the degree of response of the com-panies i n that industry to the constant c a l l f o r f u l l d i s -closure. To the extent that conscious e f f o r t s are made to d i s t i n g u i s h the notes, the response can be said to be p o s i t i v e . On the other hand, p r e v a i l i n g practices may leave much to be desired. The chapter w i l l show that the degree of response varies quite considerably from industry to industry. 1 3 4 Some industries consciously discard inappropriate methods and t r y out new means of distinguishing the notes, i n attempting to a t t r a c t the statement reader's attention. The test of a method must, then, be: Does i t improve the r e a d a b i l i t y of the note? Arrangement of the Motes Two ways of placing the notes were distinguished -columnar and l i n e a r . Table 6 . 1 shows that the p r e v a i l i n g practice i n each of the indu s t r i e s , without exception, was to place the notes l i n e a r l y . In both finance and miscel-laneous, a l l notes were l i n e a r l y placed. TABLE 6 . 1 Notes C l a s s i f i e d by P r i n c i p a l Categories, Arrangement and Industries (As percentages of t o t a l notes i n each category) Linear Columnar Industry I F s T I F s T Finance 1 0 0 1 0 0 1 0 0 1 0 0 0 0 0 0 Forest & A l l i e d 1 0 0 81 6 1 78 0 1 9 3 9 2 2 Iron & Steel 1 0 0 1 0 0 6 8 8 8 0 0 3 2 1 2 C a p i t a l 1 0 0 9 5 72 8 1 0 5 28 1 9 Consumption 1 0 0 1 0 0 7 2 8 2 0 0 28 1 8 Public U t i l i t y 1 0 0 9 7 5 5 7 7 0 3 4 5 2 3 Service 1 0 0 1 0 0 9 6 9 7 0 0 4- 3 Miscellaneous 1 0 0 1 0 0 1 0 0 1 0 0 0 0 0 0 A l l 1 0 0 9 7 7 7 8 7 0 3 2 3 1 3 135 In addition, the integrated notes i n each of the industries were l i n e a r l y presented. This was also true of the footnotes i n f i v e industries and the separate notes i n two in d u s t r i e s . No exception to the predominance of l i n e a r l y placed footnotes and separate notes arose i n .any of the i n d u s t r i e s . Two industries - fo r e s t and a l l i e d and public u t i l i t y had bigger than usual proportions of columnarly presented notes. I t i s evident from the Table that the practice of placing the notes i n columns was more used with regard to the separate notes. Location of the Notes Since the integrated notes and the footnotes were placed within or at the foot of the f i n a n c i a l statements respectively, i t became s i g n i f i c a n t to discover which f i n a n c i a l statement t y p i c a l l y contained these notes. Analysis of the l o c a t i o n of the separate notes would be more meaningfully made i n terms of the place the state-ments of notes occupied i n the Annual Report, r e l a t i v e to the set of f i n a n c i a l statements. Table 6.2 shows that i n each of the industries more than 90% of the integrated notes were found i n the Balance Sheet. In comparison, the larg e s t proportion of foot-notes appended to the Balance Sheet i n any industry was 74% f o r f o r e s t and a l l i e d . This figure dropped to as low 136 as 42$ for public u t i l i t y . TABLE 6.2 Location of Integrated Notes and Footnotes by Industries (As percentages of t o t a l notes i n each category i n each Industry) F i n a n c i a l Integrated Notes Footnotes Statement F l FA IS CL CN PU SE MI F l FA IS CL CN PU SE MI Balance Sheet 91 94 91 95 91 95 95 96 72 75 49 47 62 42 50 54 Income Statement 0 6 5 0 9 3 5 4 14 7 34 29 22 34 18 37 Retained Earnings 9 0 2 0 0 0 0 0 14 2 5 5 io 21 16 3 Income & Retained Earnings 0 0 0 5 0 0 0 0 0 14 6 9 4 3 16 o Surplus Statement 0 0 2 0 0 2 0 0 0 0 3 5 2 0 0 0 Source & 0 0 0 0 0 0 0 0 0 2 3 5 0 0 0 6 Application of Funds Note: F l - Finance CN - Consumption FA - Forest & A l l i e d PU - Public U t i l i t y IS - Iron & Steel SE - Service CL - Ca p i t a l MI - Miscellaneous Consumption had the largest proportion of integrated notes found i n the Income Statement but t h i s was only about a quarter of the footnotes appended to the Income Statement i n miscellaneous. I t i s s i g n i f i c a n t to observe that while 137 no industry had any integrated notes inserted i n the Source and Application of Funds Statement, three industries had footnotes appended to t h i s statement. To sum up, while very few integrated notes were found i n f i n a n c i a l statements other than the Balance Sheet, footnotes were appended to these other f i n a n c i a l statements more frequently. The s t a t i s t i c s i n Table 6.3 show that i n s i x indus-t r i e s , the practice was to locate the statements of notes on separate pages immediately a f t e r the set of f i n a n c i a l statements. The two exceptions were i r o n and s t e e l and miscellaneous. I t i s s i g n i f i c a n t to observe that service and forest and a l l i e d had, on occasions, placed the state-ment of notes even before the set of f i n a n c i a l statements. P o s i t i o n of the Notes; Indention from the L e f t Margin There were three aspects to the study of the p o s i t i o n of the notes. This section examines the p o s i t i o n of the notes i n terms of the indention of the notes from the l e f t margin. The two succeeding sections w i l l consider the other two aspects - relationship to the r i g h t margin and s p a t i a l separation & i n turn. Table 6.4- shows that the p r e v a i l i n g practice i n each industry was to begin the notes at the l e f t margin, without indention. The prevalence of t h i s practice varied from industry to industry. The practice of indenting 138 TABLE 6.3 Location of Statements of Notes by Industries (Figures i n brackets are percentages of t o t a l statements i n each industry) Statements Industry Located F l FA IS CL CN PU SE MI A l l On separate pages, immediately a f t e r set of f i n a n c i a l statements 5 (63) 4 (50) 2 ah) 5 O i l ) . 15 (75) 7 (4-7) 8 (43) 0 (0) 46 (47) On separate pages, before set of f i n a n c i a l statements 0 (0) l (12) 0 (0) 0 (o) 0 (0) 0 (0) 2 (10) 0 (0) 3 (3) On separate pages, between set of f i n a n c i a l statements 0 (0) 0 (0) 1 (7) 2 (17) 0 (0) 2 (13) 1 (5) 0 (o) 6 (6) On same pages as one or more of set of f i n a n c i a l statements 0 (0) 0 (0) 1 (7) 2 (17) 0 (0) 0 Co) 2 (10) 1 (33) 6 (6) Elsewhere 3 (37) (3$) 10 (72) 3 (25) 5 (25) 6 (40) 6 (32) 2 (6?) 38 (38) Note: 1. F l - Finance CN - Consumption FA - Forest & A l l i e d PU - Public U t i l i t y IS - Iron & S t e e l SE - Service CL - Ca p i t a l MI - Miscellaneous 2. "Elsewhere" includes statements placed a f t e r the set of f i n a n c i a l statements but with other informational material intervening between the l a s t f i n a n c i a l statement of the set and the statement of notes. 139 TABLE-6.4 Notes C l a s s i f i e d by P r i n c i p a l Categories, Indention from L e f t Margin of Page and Industries (As percentages of t o t a l notes i n each category) Notes Which Notes Indented Notes Centred Began at Left from L e f t Across Margin of Page Margin of Page Page/Pages Industry I F S T I F S T I F S T Finance 27 43 100 78 73 0 0 11 0 57 0 11 Forest & A l l i e d 29 70 100 72 71 21 0 24 0 9 0 4 Iron & Steel 18 46 100 59 82 36 0 34 0 18 o 7 C a p i t a l 43 100 100 91 57 0 0 9 0 0 0 0 Consumption 44 66 100 84 56 18 0 12 0 16 0 4 P u b l i c U t i l i t y 16 45 100 63 81 18 0 29 3 37 0 8 Service 43 48 100 86 57 37 0 19 0 15 0 3 Miscel-laneous 4 78 100 55 96 13 0 1^ 0 9 0 4 A l l 25 60 100 75 74 22 0 20 1 18 0 5 the notes was more widespread i h miscellaneous than i n any other industry. This was followed by i r o n and s t e e l . A la r g e r proportion of finance: notes were centred r e l a t i v e to that of the other in d u s t r i e s . On the other hand, c a p i t a l d i d not use such a practice at a l l . 140 Without exception, the separate notes i n each of the industries were a l l not indented. The predominance of notes that began at the l e f t margin held true f o r the footnote category i n each of seven of the in d u s t r i e s . The exception, finance, had more footnotes centred. In contrast, the practice of indenting the notes was most applied to the integrated notes i n each of the indus-t r i e s . Thus, the integrated notes i n each of the industries were predominantly indented. This predominance was most pronounced i n miscellaneous and l e a s t i n consumption. In passing, i t i s relevant to observe that the prac-t i c e of centering the notes was used i n seven industries f o r the footnotes, none of the industries for the separate notes and only one industry for the integrated notes. P o s i t i o n of the Notes; Relationship to the Right Margin This section considers the second aspect of the posi-t i o n of the notes: where they terminated i n r e l a t i o n to the r i g h t margin of the page. Table 6.5 shows that with one exception - miscellan-eous - each of the industries had more of i t s notes t e r -minating at the r i g h t margin of the page. I t i s s i g n i f i c a n t to observe that the separate notes i n each industry completely terminated at the r i g h t margin of the page. In contrast, with the exception of service, the integrated notes i n each of the remaining industries predominantly terminated some distance from the r i g h t margin 141 TABLE 6.5 Notes C l a s s i f i e d by P r i n c i p a l Categories, Relationship to the Right Margin of Page and Industries (As percentages of t o t a l notes i n each category) Notes Ending Some Notes Ending at Distance from Right Right Margin Margin of Page of Page  Industry I F s T I F S T Finance 73 93 0 28 27 7 100 72 Forest & A l l i e d 88 53 0 42 12 47 100 58 Iron & Steel 98 56 0 46 2 44 100 54 C a p i t a l 96 67 0 26 4 33 100 74 Consumption 72 48 0 21 28 5 2 100 79 Public U t i l i t y 93 50 0 38 7 50 10° 62 Service 48 26 0 9 52 74 100 91 Miscellaneous 68 59 0 52 32 41 100 48 A l l 83 53 0 29 17 47 100 71 of the page. The same was true of the footnotes i n f i v e of the industries - the exceptions being consumption, service and public u t i l i t y , the l a t t e r having an equal number of notes terminating some distance from the r i g h t margin as those terminating at the r i g h t margin. 142 P o s i t i o n of the Notes: S p a t i a l Separation The t h i r d aspect i n the analysis of the p o s i t i o n of the notes involved a consideration of whether the notes were s p a t i a l l y separated from each other or from the f i n a n c i a l statement: items. Table 6.6 shows that the notes i n each of the indus-t r i e s , without exception, were predominantly s p a t i a l l y separated. Forest and a l l i e d had the largest proportion of notes not s p a t i a l l y separated, while public u t i l i t y had the smallest proportion. The use of parentheses was not widespread. In only one industry - miscellaneous - was i t used to any s i g n i f i -cant extent. Even le s s use was made of bold l i n e s i n the in d u s t r i e s . I t i s s i g n i f i c a n t to observe that only four industries used t h i s method at a l l , and then, to a very l i m i t e d extent. The separate notes i n each of the industries were either completely or overwhelmingly s p a t i a l l y separated. S i m i l a r l y , the footnotes i n a l l the industries and the integrated notes i n each of seven of the industries were predominantly separated. The integrated notes i n fo r e s t and a l l i e d represented the exception. In passing, i t i s i n t e r e s t i n g to observe that both f o r e s t and a l l i e d and i r o n and s t e e l t r i e d a novel approach to distinguishing the notes - that of enclosing them i n boxes. 143 TABLE 6.6 Notes C l a s s i f i e d by P r i n c i p a l Categories, S p a t i a l Separation and Industries (As percentages of t o t a l notes i n each category) Extra Spacing from Use of Statement Separated by Not P a r e n t h e s f l s Ttema Bold Lines Separated Industry I F S T I F S T I F S T I F S T Finance 55 0 0 Forest & A l l i e d 18 0 0 Iron & Steel 35 0 0 C a p i t a l 19 0 0 Consump-t i o n 28 4 0 Public U t i l i t y 1G 26 0 Service 33 3 0 M i s c e l -laneous 56 0 0 A l l 27 4 0 8 18 50 100 78 0 14 3 23 77 100 75 6 1 0 9 37 87 98 78 0 0 3 48 95 99 90 0 0 5 31 74 100 85 0 o 8 78 71 100 88 12 0 3 19 87.100 91 0 0 20 20 100100 71 0 0 6 44 82 100285 4 1 0 3 27 36 0 11 o l 53 23 o 21 21 1 28 13 0 12 0 o 43 5 1 7 0 0 41 22 0 10 0 4 0 3 0 a o o 48 io o 6 o o 24 o o 9 o l 25 13 o 8 Note: 1. 2. 3. Includes a note that i s enclosed i n a box. Not exactly 100 - e f f e c t of rounding, "a" - less than half a percent. 144 Length of the Notes Four classes of notes, based on t h e i r length, were distinguished - short, medium, long and very long. The s t a t i s t i c s i n Table 6 .7 show that i n s i x indus-t r i e s the notes were t y p i c a l l y short; the exceptions -c a p i t a l and service - having more medium notes. Miscellan-eous was the industry with the largest proportion of short notes. On the other hand, service had the biggest propor-t i o n of very long notes, r e l a t i v e to the other in d u s t r i e s . Finance was the other industry with a larger than usual proportion of very long notes. In f i v e i n d u s t r i e s , the separate notes were t y p i c a l l y of medium length. Of the remaining three, finance and ser-vice were bimodal between medium and long notes, while f o r e s t and a l l i e d had more long notes. I t i s s i g n i f i c a n t to observe that the separate note category was the only category to have any very long notes. Without exception, the footnotes i n each of the i n -dustries were predominantly short. Finance was the indus-t r y with the largest proportion of short footnotes - only 7% exceeding three l i n e s each. Iron and s t e e l and fo r e s t and a l l i e d were the only two industries with some long footnotes. As with the footnotes, the integrated notes i n a l l industries were predominantly short. Service and fo r e s t 145 and a l l i e d were the only industries with sizeable propor-tions of medium length integrated notes. In contrast to the footnote category, as many as four industries had some long integrated notes. These were service, public u t i l i t y , c a p i t a l , and f o r e s t and a l l i e d . TABLE 6.7 Notes C l a s s i f i e d by P r i n c i p a l Categories, Length of Notes and Industries (As percentages of t o t a l notes i n each category) Short: Medium: 1-3 Lines 4-9 Lines Long: 10-25 Lines Very Long: More Than 25 Lines Industry I F S T I F S T I F S T I F S T Finance 91 93 10 38 9 7 37 27 0 0 37 24 0 0 16 11 Forest & A l l i e d 53 79 10 51 41 16 32 26 6 5 42 18 0 0 16 5 Iron & Steel 79 78 21 57 21 19 44 29 0 3 30 12 0 0 5 2 C a p i t a l 71 86 15 36 24 14 51 40 5 0 27 19 0 0 7 5 Consumption 91 82 16 41 9 18 51 38 0 0 26 17 0 0 7 4 Public U t i l i t y 87 84 20 52 12 16 38 26 1 0 36 19 0 0 6 3 Service 48 84 14 28 43 16 34 32 9 0 34 26 0 0 18 14 M i s c e l -laneous 92 75 42 75 8 25 50 23 0 0 8 2 0 0 0 0 A l l 79 81 16 45 19 18 42 31 2 1 32 18 0 0 10 6 14-6 Typography of the Notes The notes could be d i f f e r e n t i a t e d from the finan-c i a l statement items by variations i n type. This v a r i a -t i o n could be i n the size of the type or st y l e of the type or weight of the p r i n t i n g . For each note, d i f f e r e n t i a t i o n o could be i n one or more of these aspects of.typography. Table 6.8 shows that the p r e v a i l i n g practice i n seven of the industries was not to d i f f e r e n t i a t e the notes by variations i n type. The exception was miscellaneous. The practice of not d i f f e r e n t i a t i n g the notes was most widespread i n service. Public u t i l i t y had the largest proportion of notes d i f f e r e n t i a t e d by smaller p r i n t s , among the in d u s t r i e s , while i t was i n miscellaneous that the practice of d i f f e r e n t i a t i n g the notes by both smaller and l i g h t e r p r i n t s achieved some degree of s i g n i f i c a n c e . Undifferentiated separate notes predominated i n each of the in d u s t r i e s . The separate notes i n miscellan-eous and forest and a l l i e d were completely undifferentiated. Iron and s t e e l had a sizeable proportion of separate notes d i f f e r e n t i a t e d by only smaller p r i n t s . In s i x in d u s t r i e s , the footnotes were l a r g e l y un-d i f f e r e n t i a t e d . Of the remaining two in d u s t r i e s , the footnotes i n finance were l a r g e l y d i f f e r e n t i a t e d by other variati o n s i n type while those i n public u t i l i t y were b i -modal between notes d i f f e r e n t i a t e d by smaller p r i n t s and 147 TABLE 6.8 Notes C l a s s i f i e d by P r i n c i p a l Categories, Typography and Industries (As percentages of t o t a l notes i n each category) Undiffer-entiated Smaller P r i n t s Smaller and Lighter P r i n t s Other Variations i n Industry I F s T I F S T I F s T I F S T Finance 18 21 92 67 4-6 7 8 14- 0 29 0 5 36 43 0 1 4 Forest & A l l i e d 94 72 1 0 0 86 6 2 0 2 0 14- 0 7 0 12 0 5 Iron & Steel 4-6 57 49 21 16 4-0 26 28 8 11 1 4 5 1 9 0 8 Capital 8 1 52 69 68 5 0 9 7 0 0 0 0 14- 48 22 25 Consumption 53 4 4 68 60 0 26 25 22 9 10 7 8 38 20 0 10 Public U t i l i t y 12 29 8 2 51 62 34 18 35 22 3 0 7 4 3h 0 7 Service 29 70 95 86 57 22 5 12 5 0 0 a 9 8 0 2 M i s c e l -laneous 24- 37 1 0 0 4 4 56 19 0 29 8 25 0 1 5 1 2 1 9 0 12 A l l 39 51 8 0 64 35 17 15 20 14- 10 2 7 1 2 22 3 9 Note: "a" - less than half those by other v a r i a t i o n s . The need to d i f f e r e n t i a t e stronger than f o r the other two proximity of these notes to the a percent. the integrated notes seemed categories, because of the f i n a n c i a l statement items. The s t a t i s t i c s i n the Table indicate that t h i s was recog-nized and practised by the companies to some extent. Even so, i n four i n d u s t r i e s , the integrated notes were la r g e l y undifferentiated. For the remaining four industries of finance, public u t i l i t y , service and miscellaneous, the pr e v a i l i n g practice was to d i f f e r e n t i a t e the footnotes by smaller p r i n t s . Use of Descriptive T i t l e s , Captions and Formal Headings The study revealed that some notes were introduced by descriptive t i t l e s , captions and formal headings. The s t a t i s t i c s i n Table 6.9 show that the notes i n each of the industries were t y p i c a l l y not introduced by descriptive t i t l e s , captions or formal headings. The practice of i n t r o ducing the notes by captions and formal headings achieved some degree of ac c e p t a b i l i t y i n miscellaneous. Three indus t r i e s - finance, c a p i t a l and consumption - did not use this method at a l l . A l l i n d u s t r i e s , to varying degrees, i n t r o -duced th e i r notes by descriptive t i t l e s . I t was c a p i t a l that used this most. Both the integrated notes and the separate notes i n each of the industries were t y p i c a l l y not introduced. With two exceptions, the footnotes i n a l l the industries were also t y p i c a l l y not introduced. These exceptions -fo r e s t and a l l i e d and miscellaneous - had more footnotes introduced by descriptive t i t l e s . 149 TABLE 6.9 Notes C l a s s i f i e d by P r i n c i p a l Categories, Use of Descriptive T i t l e s , Captions or Formal Headings and Industries (As percentages of t o t a l notes i n each category) Introduced Introduced by by Captions Descriptive and/or Formal Notes Not T i t l e s Headings Introduced Indus try I F S T I F S T I F s T Finance 9 14 37 28 0 0 0 0 91 86 63 72 Forest & A l l i e d 29 49 16 3^  6 9 o 6 65 42 84 6o Iron & Steel 30 38 5 17 0 5 0 2 70 57 95 81 C a p i t a l 9 57 37 12 0 0 0 0 91 63 88 Consumption 38 42 27 32 0 0 0 0 62 58 73 68 Public U t i l i t y 9 18 43 28 13 3 0 5 78 79 57 67 Service 9 24 0 5 38 5 0 4 53 71 100 91 Miscellaneous 4 44 0 21 0 25 0 12 96 31 100 67 A l l 18 37 21 24 7 6 0 3 75 57 79 73 The Keying of the Notes Some notes were keyed; others were not. The keying of notes could be by descriptive wordings, or asterisks or daggers or parentheses. Table 6.10 sets out the extent of the practice of keying the notes i n the i n d u s t r i e s . 150 TABLE 6.10 Notes C l a s s i f i e d by P r i n c i p a l Categories, Mechanics of Keying and Industries (As percentages of t o t a l notes i n each category) Not Keyed by Descriptive Keyed by Keyed by Daggers or Industry I F S T I F S T I F S T I F s T Finance 100 93 43 61 0 0 57 38 0 7 0 1 0 0 0 0 Forest & A l l i e d 100 79 23 64 0 21 77 36 0 0 0 0 0 0 0 0 Iron & Ste e l 95 79 24 63 0 16 76 34 5 3 0 2 0 2 0 1 C a p i t a l 90 62 22 39 5 14 78 56 5 19 0 4 0 5 0 1 Consump-t i o n 94 82 24 47 3 14 76 52 3 4 0 1 0 0 0 0 Public U t i l i t y 100 82 25 54 0 5 75 44 o 13 0 2 0 0 0 0 Service 95 95 76 81 5 5 24 19 0 0 0 0 0 0 0 0 Miscel-laneous 96 75 58 80 o 16 42 14 4 9 0 6 0 0 0 0 A l l 97 81 39 61 1 12 61 37 2 6 0 2 0 1 0 a Note: "a" - less than half a percent. The s t a t i s t i c s i n the Table show that the p r e v a i l i n g practice i n each of s i x of the industries was not to key the notes. The two exceptions - c a p i t a l and consumption - showed a predominance of notes keyed by descriptive wordings. 151 A s t e r i s k s , daggers and parentheses were infrequently used as keying devices. The integrated notes and the footnotes i n each of the industries were predominantly not keyed. In the indus-t r i e s of finance, f o r e s t and a l l i e d and public u t i l i t y , the integrated notes were completely not keyed. In comparison, i n only two industries were the separate notes predomin-antly not keyed. These were service and miscellaneous. The p r e v a i l i n g practice i n the other s i x industries was to key the separate notes by descriptive wordings. Of the three categories of notes, i t was the foot-note category that used asterisks most. S i m i l a r l y , the only two notes keyed by daggers and parentheses were foot-notes. These occurred i n i r o n and s t e e l and c a p i t a l r e s p e c t i v e l y . Style of Keying of the Notes Notes could be keyed to one item, two items or more than two items. The terms, "single-keying," "double-keying," and "multiple-keying" described these situations respectively. On the other hand, when two i n d i v i d u a l notes were keyed to the same item, the term "joint-keying" was used. F i n a l l y , the term "shared-keying" applied to the s i t u a t i o n when three or more i n d i v i d u a l notes were keyed to the same item. Table 6.11 shows that i n a l l the industries keyed 1 5 2 notes were t y p i c a l l y single-keyed. The practice of double-keying, though existing i n each of the in d u s t r i e s , was, however, not prevalent. Forest and a l l i e d used t h i s most among the i n d u s t r i e s . A sizeable proportion of the keyed notes i n c a p i t a l was keyed by shared keying, r e l a t i v e to the other i n d u s t r i e s . TABLE 6.11 Keyed Notes C l a s s i f i e d by P r i n c i p a l Categories, Style of Keying and Industries (As percentages of t o t a l notes i n each category) Single Keying Double Keying Multiple Keying Joint/Shared Keying Industry I F S T I F S T I ' F S T I F S T Finance 0 7 4 3 3 0 0 i 0 1 2 8 0 0 2 1 0 0 0 0 Forest & A l l i e d 0 1 2 3 6 18 0 5 26 1 1 0 0 1 6 6 0 5 0 2 Iron & Steel 5 14 51 2 5 0 2 17 7 0 0 2 1 0 5 6 4 C a p i t a l 9 38 4 5 38 0 0 1 5 1 0 0 0 2 2 0 o 1 6 l l Consumption 3 14 6 2 4 3 0 2 1 2 8 3 0 14 1 0 2 0 a P u b l i c U t i l i t y 2 1 6 50 28 0 3 1 5 8 0 0 5 3 0 0 6 3 Service 5 5 1 8 1 5 0 0 4 3 0 0 1 a 0 O l a Miscellaneous 0 2 5 3 3 1 7 0 0 8 1 0 0 0 0 0 0 0 0 A l l 3 1 5 42 28 0 2 1 2 7 a o 3 2 0 2 4 3 Note: "a" - less than half a percent. 153 The prevalence of the practice of single-keying was also evident i n each of the categories of notes, within each industry. Use of Cross References i n Notes Some notes contained cross references; others did not. These references could be made to other notes or the statements of notes, or to the Annual Report i t s e l f or to s p e c i f i c pages within or to the f i n a n c i a l statement as a whole. Table 6.12 shows the frequency of such notes by i n d u s t r i e s . The s t a t i s t i c s i n the Table show that the p r e v a i l -ing practice i n a l l industries was not to include cross references i n the notes. Finance had the largest propor-t i o n of notes with cross references to other notes or the statement of notes. Relative to the other i n d u s t r i e s , service had a s i g n i f i c a n t proportion of notes containing cross references to f i n a n c i a l statements, while s i g n i f i -cant proportion of the notes i n fo r e s t and a l l i e d con-tained cross references to s p e c i f i c pages of the Annual Report. With one exception, the notes i n each of the cate-gories within each industry predominantly did not contain cross references. In service, there was an equal number of footnotes without cross references as of footnotes with cross references to other notes. 154 TABLE 6.12 Notes C l a s s i f i e d by P r i n c i p a l Categories, Use of Cross References and Industries (As percentages of t o t a l notes i n each category) Reference to Note/ Statement of Notes Reference to Annual Report/ F i n a n c i a l Reference to S p e c i f i c Page K f o t e s Without Cross References Industry I F S T I F S T I F s T I F S T Finance 9 36 0 8 G 0 0 0 0 0 0 o 91 64 100 92 Forest & A l l i e d 12 0 0 2 o 9 0 4 0 19 19 15 88 72 81 79 Iron & Steel 5 8 0 5 0 9 0 4 0 5 0 2 95 78 100 89 C a p i t a l 19 5 0 4 0 0 0 0 0 0 0 0 81 95 100 96 Consumption 22 18 0 7 0 14 0 3 0 4 0 1 78 64 100 89 Public U t i l i t y 3 21 0 5 0 8 1 2 0 34 0 6 97 37 99 87 Service 0 42 0 7 5 13 16 15 0 3 0 a 95 42 84 78 Miscellaneous 8 3 0 4 o 13 0 6 0 0 0 0 92 84 100 90 A l l 8 15 0 5 a 10 4 5. 0 9 1 3 91 66 95 87 Note: "a" - less than half a percent. Form of the Notes Notes could either be presented i n a completely tabular form, or i n a p a r t i a l l y tabular form or i n a narra-155 t i v e form ( i . e . discourse). Table 6 . 1 3 shows that the p r e v a i l i n g practice i n seven of the industries was to present the notes as a running discourse. Service represented the exception with a predominance of completely tabular notes. TABLE 6 . 1 3 Notes C l a s s i f i e d by P r i n c i p a l Categories, Form and Industries (As percentages of t o t a l notes i n each category) Tabular/ Tabular Discourse Discourse Industry I F S T I F S T I F S • T Finance 0 0 35 2 3 3 6 0 4 8 64 1 0 0 6 1 6 9 Forest & A l l i e d 6 2 1 1 9 18 0 1 2 1 6 1 1 9 4 6 7 6 5 7 1 Iron & Steel 7 1 3 1 0 1 0 1 9 0 1 0 8 7k 8 7 8 0 8 2 C a p i t a l 24 0 4 6 5 1 4 9 9 71 8 6 8 7 8 5 Consumption 3 8 lk 1 1 3 1 4 1 1 1 2 6 6 8 8 7 5 7 7 Public U t i l i t y 7 3 2 4 7 1 1 4 6 8 6 8 6 9k 9 0 Service 1 0 1 1 6 1 k9 1 4 8 5 6 7 6 8 1 3k k5 M i s c e l -laneous 28 1 9 0 1 9 1 6 25 0 17 5 6 56 1 0 0 6 4 A l l 1 0 1 1 24 18 15 8 7 9 7 5 81 6 9 7 3 Apart from the separate notes i n service, the notes i n each of the categories within each industry were predom-in a n t l y narrative. The separate notes i n service were 156 predominantly tabular. The Practice of Numbering the Notes In the survey, i t was found that some notes were numbered or l e t t e r e d while others were not. Table 6.14- shows that the pr e v a i l i n g practice i n four industries was to number the notes. These industries were finance, c a p i t a l , consumption and public u t i l i t y . TABLE 6.14-Notes C l a s s i f i e d by P r i n c i p a l Categories, the Extent of Numbering and Industries (As percentages of t o t a l notes i n each category) Notes Numbered Notes Not Numbered Industry I F S T I F s T Finance 0 14- 100 69 100 86 0 31 Forest & A l l i e d 0 24- 100 K9 100 76 0 51 Iron & Steel 5 11 98 4-2 95 89 2 58 C a p i t a l 0 19 85 60 100 81 15 4-0 Consumption 3 4- 100 65 97 96 0 .35 Public U t i l i t y 12 0 100 5k 88 100 0 4-6 Service 38 0 4-7 39 62 100 53 61 Miscellaneous 0 6 100 20 100 9^ 0 8o A l l 8 10 84- 51 92 90 16 K9 157 With the exception of service, the separate notes i n each of the other seven industries were predominantly or completely numbered. In sharp contrast, the i n t e -grated notes and the footnotes i n a l l industries were completely or predominantly not numbered. CHAPTER VII SUMMARY OF THE MAIN FINDINGS OF THE STUDY This chapter brings together the main findings of the study. These findings w i l l be presented i n three sections - general considerations, the informational content of the notes and the format of the notes. A. General Considerations The response from the 250 selected companies to the request for Annual Reports was, on the whole, good, though a sizeable number of companies were unable to provide some of the requested Reports because f i l e copies of these were not kept. In the aggregate, 115 companies provided the complete set of requested Annual Reports and of these 115 companies, 75 were chosen to form the basis for this study. Three-fifths of the survey companies were incor-porated before 1938, the f i r s t year of study. Public u t i l i t y seemed to be the oldest industry, a l l the selected companies exis t i n g before 1938. In t o t a l , 304- Annual Reports pertaining to the years 1938, 1948, 1953? 1958 and 1963 were examined. These 304- Annual Reports contained 802 f i n a n c i a l state-159 merits. On the average, each Annual Report contained 2.6 f i n a n c i a l statements. The study showed that the number of f i n a n c i a l statements, i n absolute terms as well as on a per Report basis, increased during the period under review. The l a t t e r i s an eloquent proof of the i n -creased information provided statement readers. On an industry basis, consumption had the largest number of f i n a n c i a l statements followed by i r o n and s t e e l , while c a p i t a l had the highest average number of f i n a n c i a l statements per Annual Report. C a p i t a l was also the only industry to show a continuous trend towards the presentation of more f i n a n c i a l statements i n the Annual Report, throughout the 25 years under review. Two-thirds of the Annual Reports had an Income Statement enclosed while half contained a Statement of Retained Earnings. The study suggested a growing accep-tance of the practice of enclosing the l a t t e r statement. Though l e a s t frequently presented i n the Annual Report, the Statement of Source and Application of Funds was being shown by a growing number of companies i n t h e i r Annual Reports. In comparison, fewer companies were enclosing Surplus Statements. The practice of enclosing the Income Statement i n the Annual Report was most accepted i n the service indus-t r y , and l e a s t i n the finance industry. The combined 160 Income and Retained Earnings Statement, the Statement of Retained Earnings, the Surplus Statement and the Source and Application of Funds Statement were more f r e -quently shown by f o r e s t and a l l i e d , consumption, mis-cellaneous and i r o n and s t e e l companies respectively. Of the 802 f i n a n c i a l statements, only 2.% of these had footnotes appended and 16% had integrated notes i n -serted. There was an increasing trend towards appending footnotes to f i n a n c i a l statements and a corresponding decrease i n the proportion of f i n a n c i a l statements which contained integrated notes. The study showed that i n each industry, there were more f i n a n c i a l statements with footnotes appended than with integrated notes inserted. Altogether, 99 statements of notes were found i n the 304 Annual Reports. Over the years, the practice of enclos-ing a statement of notes i n the Annual Report was growing. Of the i n d u s t r i e s , this practice was most accepted i n service and l e a s t i n miscellaneous. The Annual Reports, i n t o t a l , contained 1207 notes and 1497 note cases. The trend, over the years, was towards an increase i n the number of notes and note cases. On the average, each Annual Report contained 4 notes and 4 .9 note cases. The study showed a growing use of notes and note cases i n the average Annual Report throughout the 25 year period under review. The trend seemed to be to put more than one item of information i n 161 each note. Service had the most notes, while consumption had the most note cases. On the other hand, miscellaneous had the l e a s t notes as well as of note cases. Public u t i l i t y had the highest average number of notes and of note cases per Annual Report. In comparison, finance and miscellaneous had the lowest average number of notes and note cases per Annual Report respectively. C a p i t a l was the industry with the most multi-cased notes. The study showed that of the 1207 notes, 670 (56$) were separate notes, 299 (25$) were footnotes and 238 (19$) were integrated notes. While the proportion of footnotes remained r e l a t i v e l y constant over the 25 years under review, s i g n i f i c a n t l y , there was a transfer of i n -formation from the integrated notes to the separate notes. This movement was confirmed by an examination of the note-cases . The tendency to include more than one item of information i n each note was strongest for the separate note category. A larger proportion of the integrated notes than of the footnotes were multi-cased. This resulted i n 62$ of the note cases being i n the separate note category, 21$ i n the footnote category and 17$ i n the integrated note category. The study also showed that the tendency over the years was to simplify the integrated notes. At the same time, separate notes were increasingly carrying 162 more than one item of information. There was a predominance of separate notes i n each of f i v e i n d u s t r i e s . Of the remaining three i n d u s t r i e s , both forest and a l l i e d and miscellaneous used more foot-notes for disclosure of addi t i o n a l information, while i r o n and s t e e l made equal use of footnotes and separate notes. The same d i s t r i b u t i o n pattern prevailed when the note cases were examined by categories. B. The Informational Content of the Notes 1. An Over-all View The study showed that more notes provided addition-a l information on common stock than on any other subject. Two other subjects which were frequently discussed were contingent l i a b i l i t i e s and commitments and long-term debts. Subsidiaries and land and f i x e d assets were i n -frequently discussed. Half of the note cases discussed si x subjects, i n d i c a t i n g a high degree of concentration of the notes. The integrated notes category dealt with current assets most, while common stock was more often discussed by the separate notes. Footnotes were often used as d i r e c t i v e devices. The study indicated that the note cases dealing with assets were predominantly technical, while those 163 that provided further information, on equities and non-current l i a b i l i t i e s were l a r g e l y f i n a n c i a l . On a s p e c i f i c category basis, t h i s pattern prevailed for the integrated note category and the separate note category. In com-parison, the footnote cases dealing with assets, l i a b i l -i t i e s and equities were l a r g e l y technical. The study further showed that the note cases deal-ing with each of the broad subject classes of assets, non-current l i a b i l i t i e s and equities predominantly pertained to a current period and were la r g e l y recurrent and quanti-t a t i v e i n content. S l i g h t l y more than half of the note eases were f i n a n c i a l while technical note cases outnumbered d i r e c t i v e cases four to one. While the integrated notes and the separate notes were predominantly f i n a n c i a l , the foot-notes were l a r g e l y d i r e c t i v e . The most prevalent type of f i n a n c i a l cases was the elaborative type, while with the exception of those i n the footnote category, the technical cases were predominantly procedural. The foot-note category had more technical cases of a l e g a l and contractual nature. I t was revealed by the study that the note cases dealing with each of the topics - f i n a n c i a l , technical and d i r e c t i v e - predominantly pertained to a current period. Also, the f i n a n c i a l and the technical note cases were l a r g e l y recurrent and quantitative. 164-In the aggregate, the notes t y p i c a l l y referred to a current period. Of the note cases pertaining to a future period, a larger proportion had no retroactive . e f f e c t s . The note cases i n the integrated note category and the separate note category were large l y quantitative and recurrent. However, those i n the footnote category were la r g e l y non-quantitative and non-recurrent. 2. Some Trends The study indicated that over the years, the trend was towards providing more information on equities and less on assets. These trends prevailed i n the separate note category, when examined i n i s o l a t i o n . Since 1953» the practice of using the integrated notes to disclose addi t i o n a l information on assets declined. In comparison, the proportion of footnotes that were used as d i r e c t i v e devices remained r e l a t i v e l y constant over the years. A study of the asset note cases alone showed that over the years, the trend was towards providing more information on land and f i x e d assets and less on other assets, current assets apart. The tendency to provide a d d i t i o n a l information on land and fix e d assets was also apparent i n the separate note category. This brought about a decline i n the practice of using the separate notes to amplify current assets and other assets. Since 1948, the integrated notes were more and more used to 165 provide additional information on current assets. An examination of the non-current l i a b i l i t y note cases i n i s o l a t i o n revealed a s h i f t i n the use of the note cases from providing a d d i t i o n a l information on long-term debts to contingent l i a b i l i t i e s and commitments. This trend also appeared i n both the footnote category and the separate note category. However, f o r the i n t e -grated note category, no clear trend arose. The equity note cases, analysed separately, i n d i c a -ted a movement away from the practice of using these to provide additional information on options, warrants and r i g h t s . This trend also prevailed i n the integrated note sector, f o r the period under review. On the other hand, since 1953} the footnotes were less and less used to pro-vide a d d i t i o n a l information or reserves, provisions and retained earnings. No clear trends emerged i n the analysis of the f i n a n c i a l or technical or d i r e c t i v e note cases f o r a l l categories of notes combined. However, f i n a n c i a l foot-note cases were on the decline over the years while there was a growing practice to use the integrated note cases as d i r e c t i v e devices. An analysis of the f i n a n c i a l note cases i n i s o l a t i o n revealed that since 1948 more and more f i n a n c i a l note cases were comparative. This trend also arose i n the integrated note sector. On the other hand, the f i r s t 166 comparative, f i n a n c i a l note case to appear within the footnote category was i n 1958. Also within t h i s category f i n a n c i a l note cases that were descriptive of events declined since 1953• Technical note cases dealing with l e g a l and con-t r a c t u a l matters increased over the years under review. In comparison, te c h n i c a l , audit note cases seemed on the way out. The technical cases within the integrated note category were l a r g e l y procedural and over the years were becoming increasingly so. On the other hand, the tech-n i c a l footnote cases were used, more and more, to provide ad d i t i o n a l information on procedural matters. The study showed a d i s t i n c t trend towards more notes r e l a t i n g to a current period f o r the years 1953 to 1963. However, i n both the integrated note category and the foot-note category, a movement away from the presentation of notes r e l a t i n g to a current period was evident. The larger non-retroactive component of the future note cases increased over the years under review. It was evident from the study that the proportion of non-recurrent note cases decreased i n the period under review. However, the proportion of integrated notes that was non-recurrent increased. The study showed that between 1938 and 1953> there was a growing practice of including quantitative informa-t i o n i n the notes. Since 1953? however, a reverse trend 167 had set i n . The proportion of integrated note cases and separate note cases that were quantitative declined since 194-8 and 1953 respectively. The trend within the footnote category was uncertain. 3. Industry Patterns In finance, i r o n and s t e e l and public u t i l i t y , the notes were more frequently used to provide additional information on e q u i t i e s . In the other f i v e i n d u s t r i e s , there were more notes d i s c l o s i n g further information on subjects other than assets, non-current l i a b i l i t i e s and eq u i t i e s . The separate notes i n six industries l a r g e l y dealt further with equities while the footnotes i n f i v e indus-t r i e s were l a r g e l y used as d i r e c t i v e devices. In f i v e i n d u s t r i e s , the integrated notes provided further informa-t i o n on subjects other than e q u i t i e s , assets and non-current l i a b i l i t i e s . In four of the indu s t r i e s , the asset note cases more frequently r e f e r r e d to current assets while i n the other four, the asset note cases l a r g e l y r e f e r r e d to assets other than current assets or land and f i x e d assets. In f i v e i n d u s t r i e s , the non-current l i a b i l i t y note cases more frequently referred to contingent l i a b i l i t i e s , and commitments than to long-term debts. The reverse 168 was true i n the other three i n d u s t r i e s . An examination of the equity note cases showed that common stock was more frequently discussed i n three in d u s t r i e s , preferred stock i n two others, and reserves, provisions and retained earnings i n the remaining three. The study showed that i n a l l industries, the notes were predominantly f i n a n c i a l . This was also true of the separate notes i n seven of the industries - public u t i l i t y being the exception. With the exceptions of finance, i r o n and s t e e l and service, the integrated notes i n the other industries were l a r g e l y f i n a n c i a l . Direc-tive cases predominated the footnote category i n f i v e industries - the exceptions being c a p i t a l , f o r e s t and a l l i e d and miscellaneous. Of the f i n a n c i a l note cases, elaborative types predominated i n a l l the in d u s t r i e s . The separate note cases i n a l l the in d u s t r i e s , the footnote cases i n f i v e of the industries and the integrated note cases i n four of the industries were also predominantly elaborative. The most important class of technical cases i n each of the industries was procedural. The separate note cases and the integrated note cases i n seven of the industries and the footnote cases i n three of the indus-t r i e s were predominantly procedural. In three of the in d u s t r i e s , the technical note cases within the foot-note category were l a r g e l y l e g a l and contractual. 169 Service, public u t i l i t y and consumption had larger than average proportions of technical note cases that referr e d to business and economic p o l i c i e s . For each industry and -within each category of notes, the note cases predominantly pertained to a cur-rent period. Generally, more note cases pertained to a past period than to a future period i n each category of notes within each industry. Exceptions to t h i s were the footnote eases i n both consumption and public u t i l i t y and the separate note cases i n miscellaneous. Forest and a l l i e d had the largest proportion of note cases r e l a t i n g to a future period. , With the exception of finance, the future note cases i n each of the other i n d u s t r i e s , predominantly d i d not have retroactive e f f e c t s . Public u t i l i t y was the industry with the largest proportion of future note cases with retroactive e f f e c t s . In i r o n and s t e e l , a l l the future note cases within the footnote category had re t r o -active effects on current and past periods. This was also true of the future note cases within the integrated note category of public u t i l i t y . The study showed that the note cases i n seven i n -dustries were predominantly recurrent - the exception being i r o n and s t e e l . While "the integrated note cases and the separate note cases i n a l l industries were la r g e l y recurrent, the footnote cases i n each of s i x 170 industries and i n t o t a l were predominantly recurrent. The note cases i n seven of the industries were predominantly quantitative. The exception was public u t i l i t y . The separate notes i n seven of the in d u s t r i e s , the integrated notes i n f i v e of the indu s t r i e s , and the footnotes i n only one industry, were l a r g e l y quantitative. G. The Format of the Notes 1. Some Trends The study showed that t y p i c a l l y the notes were pre-sented l i n e a r l y , though the practice of presenting the notes i n two or more columns was gaining popularity over the years under review. A l l the integrated notes were presented l i n e a r l y . While the proportion of footnotes that were presented l i n e a r l y remained r e l a t i v e l y constant over the years, the trend was towards presenting the separate notes i n columns. About 94$ of the integrated notes were found i n the Balance Sheet. A weak trend towards i n s e r t i n g more integrated notes i n f i n a n c i a l statements other than the Balance Sheet was discernible over the years. None of the statements of Source and Application of Funds con-tained any integrated notes at a l l . F i f t y - f i v e percent of the footnotes were appended 171 to the Balance Sheet. A quarter were attached to the Income Statement and a few more appended to the State-ment of Source and Application of Funds. The practice of appending footnotes to statements other than the Balance Sheet, was growing over the years under review. Only about half of the statements of notes to f i n a n c i a l statements were located on separate pages within the Annual Reports, immediately following the set of f i n a n c i a l statements, without any intervening i n -formational material. This practice was on the decline since 1943. The study showed that t y p i c a l l y the notes termin-ated at the r i g h t margin, were not indented from the l e f t margin and were s p a t i a l l y separated. The greater need to d i f f e r e n t i a t e the integrated notes from the f i n a n c i a l state-ment items was recognized and resulted i n these notes being predominantly indented, s p a t i a l l y separated and terminated some distance from the ri g h t margin. The prac t i c e of indenting the integrated notes, s p a t i a l l y separating them and terminating them some distance from the r i g h t margin was gaining wider acceptance over the years under review. In comparison, the practice of indenting the footnotes and terminating them some d i s -tance from the r i g h t margin declined. The notes were generally short though the trend was towards making them longer. The integrated notes 172 were predominantly concise and the practice of keeping them concise was gaining wider acceptance, over the years. Footnotes were also t y p i c a l l y short but more of these were of medium length, r e l a t i v e to the integrated notes. The trend was towards short footnotes. Only the separ-ate notes had very long notes. Here, there was a s h i f t away from short and very long notes to medium and long notes. Eighty percent of the integrated notes were d i f f e r -entiated from the f i n a n c i a l statement items by variations i n type. Such a practice was growing over the years. The footnotes and the separate notes were l a r g e l y not d i f f e r e n t i a t e d by variations i n type. The tendency seemed to be not to d i f f e r e n t i a t e the footnotes by v a r i a -tions i n type. The notes, t y p i c a l l y , did not have descriptive t i t l e s , captions or formal headings. The proportion of such notes seemed to increase over the years. The practice of putting a descriptive t i t l e , caption or formal heading to the integrated notes declined over the years. The use of descriptive t i t l e s , captions or formal headings was more prevalent for the footnote category r e l a t i v e to the other two. However, even so, the practice declined during the period under review. The study showed that four devices were used to key the notes - descriptive wordings,' asterisks, daggers 1 7 3 and parentheses. The notes were t y p i c a l l y not keyed. However, the trend was towards keying the notes, espec-i a l l y by descriptive wordings. A larger proportion of the separate notes than of the footnotes or the i n t e -grated notes was keyed, r e f l e c t i n g the obviously greater need to co-relate these notes to the f i n a n c i a l state-ment items to which tb.ey pertained. This need to key the separate notes was gaining recognition over the years. S i m i l a r l y , there was a growing practice of keying the footnotes. A var i e t y of styles of keying the notes was re-vealed by the study. The most popular was to key each note to an i n d i v i d u a l f i n a n c i a l statement item. The practice of enclosing cross references i n the notes was not prevalent and over the years, t h i s practice declined. However, the practice of enclosing them i n the integrated notes was gaining wider acceptance but at a declining rate. The footnote category had more notes with cross references than either of the other two cate-gories. The notes were t y p i c a l l y presented i n the form of a running discourse; u n t i l 1 9 5 8 , t h i s practice increased. Of the three categories of notes, the separate note cate-gory used the tabular or mixed tabular/narrative form most. About half of the notes were numbered or l e t t e r e d . 174-Between 1938 and 1958, this proportion increased. Only the separate notes were predominantly numbered. U n t i l 1958, the trend was towards numbering the separate notes. Since then, the proportion declined. The practice of numbering the integrated notes declined since 1953-2. Industry Patterns The p r e v a i l i n g practice i n each industry was to place the notes l i n e a r l y . The notes i n finance and mis-cellaneous were completely l i n e a r l y placed. The i n t e -grated notes In a l l ind u s t r i e s , the footnotes i n f i v e i ndustries and the separate notes i n two industries were completely l i n e a r l y placed. The footnotes and the separ-ate notes i n the remaining industries were predominantly placed i n a l i n e a r fashion. Forest and a l l i e d and public u t i l i t y had proportionately more columnarly placed notes. In a l l i n d u s t r i e s , more than 90$ of the integrated notes were found i n the Balance Sheet. However, for each industry, not as many footnotes were appended to the Balance Sheet. The range varied from 4-0$ (public u t i l i t y ) to 74-$ (forest and a l l i e d ) . A f t e r the Balance Sheet, the Income Statement contained more integrated notes i n s i x industries and more footnotes i n s i x industries than any of the other f i n a n c i a l statements. The Retained Earnings Statement i n finance and the combined Income and Retained Earnings Statement i n c a p i t a l had more integrated notes than the Income Statement. This was also true of the 175 combined Income and Retained Earnings Statement i n forest and a l l i e d , i n connection with footnotes, while the Retained Earnings Statement i n finance contained an equal number of footnotes as the Income Statement. The study showed that while a few footnotes were appended to the Source and Application of Funds Statement, no integrated note was inserted i n this statement. The statement of notes was t y p i c a l l y located on separate pages, immediately a f t e r the set of f i n a n c i a l statements, i n s i x in d u s t r i e s . The exceptions were i r o n and s t e e l and miscellaneous. Service and miscellaneous occasionally placed the statement of notes even before the set of f i n a n c i a l statements. The study showed that the notes i n a l l industries predominantly began at the l e f t margin and were predom-in a n t l y separated while, i n seven industries, the notes predominantly were terminated at the r i g h t margin, the exception being miscellaneous. Miscellaneous, also, had the largest proportion of notes indented from the l e f t margin. More notes i n finance were centred across the page or pages, r e l a t i v e to those i n the other indus-t r i e s . The separate notes i n each of the industries com-p l e t e l y began at the l e f t margin, were completely terminated at the r i g h t margin and were completely or overwhelmingly " s p a t i a l l y separated. With the exception 176 of finance, the footnotes i n a l l other industries began at the l e f t margin. In a l l i n d u s t r i e s , the footnotes were predominantly s p a t i a l l y separated while i n only two industries were the footnotes predominantly termin-ated at the r i g h t margin. Recognition of the greater need to d i f f e r e n t i a t e the integrated notes from the finan-c i a l statement items resulted i n these being predom-in a n t l y indented from the l e f t margin i n a l l i n d u s t r i e s , predominantly terminated some distance from the ri g h t margin i n seven industries and predominantly s p a t i a l l y separated i n seven of the in d u s t r i e s , the exceptions being service and fo r e s t and a l l i e d respectively. The notes i n s i x industries were t y p i c a l l y short; f o r both c a p i t a l and service there were more notes of medium length. Miscellaneous was the industry with the lar g e s t proportion of short notes, while service had the la r g e s t proportion of very long notes. The separate notes i n f i v e industries were t y p i c a l l y of medium length while the footnotes and the integrated notes i n a l l industries were predominantly short. The p r e v a i l i n g practice i n seven industries was not to d i f f e r e n t i a t e the notes by variations i n type, mis-cellaneous being the exception. Public u t i l i t y was the industry where the use of smaller p r i n t s to d i f f e r e n t i a t e the notes was r e l a t i v e l y widespread. The separate notes i n a l l ind u s t r i e s , the footnotes i n seven industries and 177 the integrated notes i n four industries were predomin-natly undifferentiated by variations i n type. Four i n -dustries s p e c i f i c a l l y gave recognition to the need to d i f f e r e n t i a t e the integrated notes by variations i n type, so as to make clear the status of these notes, r e l a t i v e to the f i n a n c i a l statement items. The study showed that i n a l l ind u s t r i e s , the notes were t y p i c a l l y not introduced by descriptive t i t l e s , captions or formal headings. The use of captions and formal headings was more prevalent i n miscellaneous, r e l a t i v e to the other ind u s t r i e s , while c a p i t a l used descriptive t i t l e s more frequently than the other indus-t r i e s . The separate notes and the integrated notes i n a l l industries and the footnotes i n s i x of the industries were predominantly not introduced by descriptive t i t l e s , captions or formal headings. The footnotes i n f o r e s t and a l l i e d and miscellaneous were t y p i c a l l y introduced by descriptive t i t l e s . The p r e v a i l i n g practice i n s i x industries v/as not to key the notes. Capital and consumption represented the exceptions. Descriptive wordings were more f r e -quently used to key the notes. The integrated notes and the footnotes i n a l l industries were predominantly not keyed. On the other hand, only i n the two industries of service and miscellaneous were the separate notes pre-dominantly not keyed. 178 In a l l i n d u s t r i e s , the keyed notes were t y p i c a l l y keyed to one item at a time. The practice of keying one note to two or more items was not prevalent. This prac-t i c e was more common i n fo r e s t and a l l i e d than i n any of the other i n d u s t r i e s . The study showed that, predominantly, the notes i n a l l industries did not contain cross references. The notes i n finance more frequently contained cross r e f e r -ences to other notes while those i n service more f r e -quently contained cross references to the f i n a n c i a l state-ments, r e l a t i v e to those i n the other i n d u s t r i e s . The p r e v a i l i n g practice i n seven industries was to present the notes i n the form of a running discourse, the exception being service. Except f o r the separate notes i n service which were predominantly tabular, the notes i n each of the categories within each of the industries were la r g e l y narrative. F i n a l l y , the study indicated that the p r e v a i l i n g practice i n the four industries of finance, c a p i t a l , con-sumption and public u t i l i t y was to number the notes. While the footnotes and the integrated notes i n a l l indus-t r i e s were predominantly not numbered, the separate notes i n seven of the indu s t r i e s , with the exception of service, were predominantly numbered. CHAPTER VIII SOME OBSERVATIONS AND RECOMMENDATIONS Tills chapter brings the study to an end by present-ing some observations on the findings of the study, and recommendations f o r the use and presentation of notes to f i n a n c i a l statements. No fi x e d formula f o r the "proper" presentation and use of notes to f i n a n c i a l statements i s suggested. This i s to give recognition to the f a c t that a c e r t a i n degree of f l e x i b i l i t y i s to be allowed management i n the use of notes and the presentation thereof, since notes are used f o r a wide variety of purposes, with the consequent need to modify the format of the notes to meet these varying purposes. However, the study shows that the use and presenta-t i o n of notes appears to be l a r g e l y a matter of personal choice; no evidence was found of any guiding p r i n c i p l e or rule concerning t h e i r use and format. Recommendations are therefore made with the expectation of reducing this l e v e l of discretionary action and to provide some guide-l i n e s f o r the use of notes and t h e i r presentation thereof. These guidelines w i l l necessarily be broad so that manage-ment w i l l not f e e l unduly or u n f a i r l y r e s t r i c t e d i n the use and presentation of notes. The recommendations are 180 based on the better practices of the day, as shown by the study. Three basic questions face the management attempting to use notes to f i n a n c i a l statements: what information can properly be disclosed by way of notes to the f i n a n c i a l statements, where should the notes be located, and how should the notes be located. A. Decision to Use a Note As to the f i r s t question, the study indicates that a l l sorts of information are shown by way of notes to the f i n -a n c i a l statements. However, not a l l the information con-tained i n the notes can be considered useful to the state-ment reader or material to a f u l l understanding of the f i n a n c i a l statements. Some notes confuse the s i t u a t i o n even more by t h e i r complexity, verbosity, length and l e g a l i s t i c and technical terminology. A larger volume of notes i s not necessarily the best response to the c a l l f o r f u l l disclosure. This action i s commendable i f the use of more notes helps to c l a r i f y and thus further understanding. This action cannot be commended i f the sheer volume of notes discourages the reading of the notes and/or i f the notes become more com-plex and therefore more confusing. The aim must be the use of an adequate number of notes which would lead to a f u l l understanding of the 181 f i n a n c i a l p o s i t i o n of the company and the results of i t s operations. The guiding rule i s to include any informa-t i o n which i s necessary to prevent the f i n a n c i a l state-ments from being misleading, which s i t u a t i o n would aris e because of the non-inclusion of the information. This means that a l l immaterial, i r r e l e v a n t or i n s i g n i f i c a n t information, however i n t e r e s t i n g , should be excluded. B. Locating the Notes Three locations are available for placing the note once the decision to use a note has been made. The note can be presented within the body of the f i n a n c i a l state-ment, as an integrated note, or i t can be appended at the foot of the f i n a n c i a l statement as a footnote. Alterna-t i v e l y , the note can be placed i n a statement of notes, referred to as a separate note i n t h i s study. Before suggesting c r i t e r i a f o r the use of one l o c a -t i o n as against another, a consideration of the advantages and disadvantages of each of these locations i s relevant. 1. Integrated Notes Locating the notes within the body of the f i n a n c i a l statement has the following advantages: 1. There i s a saving of space. Here, there i s always present the need to be concise as otherwise the f u l l f i n a n c i a l statement cannot be completely presented 182 on the page or pages. Only the more useful notes w i l l be inserted. 2. The close proximity of the notes to the related f i n a n c i a l statement items c l e a r l y emphasizes the need to read the notes i n conjunction with the related items and obviates the necessity to key the notes to the related items. 3. There i s less chance of the notes being over-looked or disregarded by the reader, as each note i s placed a f t e r the related f i n a n c i a l statement item. h. The notes became an i n t e g r a l part of the finan-c i a l statement and would not be l e f t out i f only the f i n a n c i a l statement i s reproduced. Certain disadvantages aris e i n the use of the integrated notes: 1. Limitations of space may r e s u l t i n incomplete or inadequate information and f u l l disclosure cannot be attained. 2. The number of such notes that can be used i s l i m i t e d p rimarily because of the need to keep the finan-c i a l statement simple and uncluttered and secondarily, because of l i m i t a t i o n s of space. 3. There i s the danger that, unless c l e a r l y des-ignated as such, these notes can be mistaken f o r the f i n a n c i a l statement items themselves and the status of the notes i s l o s t . 183 2. Footnotes Appending the notes to a f i n a n c i a l statement at i t s foot has the following advantages: 1. There i s a saving of space because of the con-scious r e a l i z a t i o n of l i m i t a t i o n s of space. Only the more useful notes w i l l be included. 2. The notes are located f a i r l y close to the r e l a -ted f i n a n c i a l statement items; they are u n l i k e l y to be missed or disregarded by the statement reader. 3. The body of the f i n a n c i a l statement i s kept clear of notes and the structure of the statement i s s i m p l i f i e d . As these appear on the same page or pages as the f i n a n c i a l statement, they are u n l i k e l y to be inadvertently l e f t out, when the f i n a n c i a l statement i s reproduced. 5. There i s no doubt as to the status of the notes. 6. Additional information on two or more related items can be given i n one note. The l o c a t i o n of the footnotes gives r i s e to the following disadvantages: 1. The number and extent of notes are l i m i t e d because of space consideration. Too few notes may be pre-sented i f only t h i s l o c a t i o n i s used and may be given inadequate treatment. 2. There i s the need to key these notes to the 184 rela t e d f i n a n c i a l statement items. 3. I f space l i m i t a t i o n s are overcome by the use of smaller p r i n t s , d i f f i c u l t i e s i n reading a r i s e , as well as unduly de-emphasizing the importance of the notes. 3. Separate Notes Putting the notes i n a statement of notes has the following advantages: 1. The l i m i t a t i o n s of space are overcome. A much larger number of notes can be used and these can be made extensive. 2. There i s a greater f l e x i b i l i t y of presentation of the notes to s u i t the type of information that i s to be shown. 3. These notes can be made to re f e r to a l l the f i n a n c i a l statements i n t o t a l . Similar items i n various f i n a n c i a l statements can be c o l l e c t i v e l y referred to i n one of these notes. 4. There i s no r e s t r i c t i o n as to the type, com-p l e x i t y and length of the informational matter to be d i s -closed. 5 . The f i n a n c i a l statements are kept simple and uncluttered. 6 . There i s no p o s s i b i l i t y of mistaking the status of these notes. The disadvantages i n the use of these notes are: 185 1. There i s the danger that too many notes may be presented. If the statement of /notes runs to great lengths, the statement reader may be unnecessarily bur-dened with de t a i l e d and i r r e l e v a n t information. 2. There i s also present the danger that these notes, being placed apart from the f i n a n c i a l statements, may be inadvertently missed and never be read. This i s p a r t i c u l a r l y so i f the statement i s located on pages before the set of f i n a n c i a l statements, with some i n t e r -vening pages between the statement of notes and the set of f i n a n c i a l statements. 3 . There i s the necessity to key the notes to ensure that they be t i e d i n to the related f i n a n c i a l statement items. To the statement reader, there i s the inconven-ience of switching between the pages, i f the notes and the related f i n a n c i a l statement items are to be read i n suc-cession. 4-. There i s the p o s s i b i l i t y that the statement of notes would be l e f t out, i f only the f i n a n c i a l statements are reproduced. 5 . The uninformed reader may not r e a l i z e that the statement of notes forms an i n t e g r a l part of the f i n a n c i a l statements and i s to be read i n conjunction therewith. In the l i g h t of the above discussions, the following observations and suggestions are offered. The integrated notes are to be used to disclose 186 matters that can be given t e r s e l y and concisely, without loss of any s i g n i f i c a n t d e t a i l s . Complex subjects are to be avoided since these necessitate lengthier discussions. Secondly, they can be used to disclose information that s p e c i f i c a l l y r e l a t e s to i n d i v i d u a l f i n a n c i a l statement items of a p a r t i c u l a r f i n a n c i a l statement. In t h i s con-nection, they should not be used to disclose information of a general non-itemised nature or to disclose informa-t i o n r e l a t i n g to the entire f i n a n c i a l statement or to disclose information pertaining to items i n other f i n a n c i a l statements. At a l l times, the need to keep the f i n a n c i a l statements clear and to avoid overdrowding has to be kept i n mind. The footnotes can be used to disclose matters that are not too complex and that dp not require excessive data or lengthy discussions. In thi s sense, they are suitable f o r the disclosure of information that i s s l i g h t -l y more complex than that to be properly shown by the integrated notes. They are also suitable f o r the presen-t a t i o n of information r e l a t i n g to s p e c i f i c items of the same f i n a n c i a l statement to which they are appended, or even to the whole f i n a n c i a l statement i t s e l f . In this connection, they should not be used to provide informa-t i o n on items i n other f i n a n c i a l statements. Also there should not be too many footnotes, as otherwise over-crowding re s u l t s and reading i s made d i f f i c u l t . They 187 are p a r t i c u l a r l y useful as d i r e c t i v e devices to i d e n t i f y , co-ordinate and co-relate other kinds of information. The separate notes are p a r t i c u l a r l y apt f o r the d i s -closure of complex matters, requiring lengthy discussions and extensive treatment. They can be used to disclose matters that need variations i n form.and presentation for e f f e c t i v e d isclosure. Further, they are suitable for the disclosure of r e l a t e d items i n two or more f i n a n c i a l state-ments, or f o r the disclosure of information pertaining to two or more f i n a n c i a l statements or for the disclosure of general non-itemised matters. C. Presenting the Notes The t h i r d question involves the format of the notes. S p e c i f i c a l l y , how should the notes i n the d i f f e r e n t loca-tions be presented so as to best draw the statement reader's attention? This question i s most c r u c i a l to the integrated notes f o r which there exists the r e a l p o s s i b i l -i t y of mistaking these notes f o r the f i n a n c i a l statement items. 1. Integrated Notes It i s suggested that each integrated note be placed next to the s p e c i f i c f i n a n c i a l statement item to which i t r e l a t e s . If t h i s i s not possible, the note i s to be keyed to the item. 188 In addition, each of the integrated notes should be d i f f e r e n t i a t e d from the related f i n a n c i a l statement item by the following methods: 1. Each note should be indented from the l e f t margin and be terminated some distance before the r i g h t margin of the page. 2. Each note should be s p a t i a l l y separated from the r e l a t e d f i n a n c i a l statement item. 3. The p r i n t i n g of the notes should be made d i f f e r -ent from that of the f i n a n c i a l statement items. One or more of the following i s appropriate - a l i g h t e r p r i n t , the use of i t a l i c s , a smaller p r i n t . h. The use of an appropriate t i t l e , such as "Note," would be preferable. 5. The numbering of the notes would be h e l p f u l . 2. Footnotes More stringent requirements of presentation need be applied to the footnotes. The following are suggested: 1. Each footnote i s to be appended to the p a r t i c u -l a r f i n a n c i a l statement containing the s p e c i f i c item or items to which the note r e l a t e s . S i m i l a r l y , i f the foot-note relates to a p a r t i c u l a r f i n a n c i a l statement, that note i s to be appended thereto. 2. Each footnote i s to be keyed to the s p e c i f i c f i n a n c i a l statement item or items to which i t r e l a t e s . 189 The method of keying most appropriate to the p a r t i c u l a r s i t u a t i o n i s to be used. 3. Each footnote i s to be numbered. h. The footnotes are to be c l e a r l y designated as such by the use of a group section, such as "Notes" and the use of a descriptive t i t l e to each footnote, such as "Note 1." "Note 2,"and so on. 5. D i f f e r e n t i a t i o n of the footnote by variations i n p r i n t , while not e n t i r e l y necessary, i s advantageous. 6. The use of short t i t l e s , succintly i n d i c a t i n g the nature of the notes, would be h e l p f u l . 7. Indenting the footnotes from the l e f t margin or terminating them some distance from the r i g h t margin i s not necessary. 3. Separate Notes For the separate notes, i t i s c r u c i a l that the statement containing the notes be properly located. In this connection, two suggestions are made: .1. The statement i s to be printed on a separate page or pages, without any other informational material on the page or pages. 2. The statement i s to be located immediately a f t e r the set of f i n a n c i a l statements, without other informational material on any intervening page or pages. The exi s t i n g p r a c t i c e , i n some companies, of loc a t i n g the 190 statement between the f i n a n c i a l statements, while not unreasonable, i s not recommended i n the i n t e r e s t of uni-formity of presentation. Locating the statement before the set of f i n a n c i a l statements i s to be strenuously r e s i s t e d . In.addition, the statement of notes i s to be: .1. Clearly designated as such by the use of a f o r -mal heading as, f o r example, "Notes to F i n a n c i a l State-ments" or "Notes to the Balance Sheet," (or any s p e c i f i -c a l l y mentioned f i n a n c i a l statement) as the case may be. 2. If the statement contains notes pertaining to more than one f i n a n c i a l statement, the statement of notes i s to be c l e a r l y divided into sections, each pertaining to a p a r t i c u l a r f i n a n c i a l statement and d i s t i n c t l y shown as such by the use of appropriate captions. A miscellan-eous section, f o r notes of a general nature, or f o r notes which refer to two or more f i n a n c i a l statements, i s appropriate. Within the statement of notes: 1. Each note i s to be numbered sequentially. 2. Each note i s to be keyed whenever necessary. 3. Each note i s to carry a short t i t l e . 4-. Extensive use of cross referencing i s to be encour-aged to co-relate pertinent items. 5. Where a p a r t i c u l a r note i s extensive, a breakdown of the note into paragraphs with appropriate headings to 1 9 1 each, i s h e l p f u l . 6. The form of the note i s to be so chosen as to d i s -close most e f f e c t i v e l y the information contained i n the notes. Therefore, the tabular and narrative forms, or a combination thereof, should be ju d i c i o u s l y selected f o r use. 7. The present practice of d i f f e r e n t i a t i n g some separate notes by indenting them from the l e f t margin and/or of terminating them some distance before the ri g h t margin i s not necessary and should be avoided. 8. S i m i l a r l y , d i f f e r e n t i a t i o n by variations i n p r i n t i s equally unnecessary and i s to be discouraged. h. General Considerations On a general basis, i t i s suggested that the notes be presented c l e a r l y and be so worded that the average statement reader can read, understand and comprehend them. In t h i s connection, l e g a l i s t i c and technical terminology i s to be avoided. The use of accurate, unambiguous and unequivocal wording i s recommended. The aim should be towards conciseness and c l a r i t y i n wording; both over-s i m p l i f i c a t i o n and involved wording are to be avoided. It i s also suggested that each note should cover • only one item or subject. Including more than one item of information i n each note i s , therefore, to be discour-aged, as this tends to d i s t r a c t and confuse the statement 192 reader. In t h i s connection, very long notes are to be avoided. I f necessary, t h i s can be done by breaking down the note into a few shorter notes. Undoubtedly, these requirements are stringent, i n the l i g h t of exi s t i n g practices. The study has shown that some companies, i n the more recent years, have been con-sciously s t r i v i n g towards the better presentation and use of notes to the f i n a n c i a l statements. However,much s t i l l remains to be done and unless the requirements, as out-l i n e d above, are met, the use of notes and the presentation thereof, w i l l continue to be subject to much abuse. The highly discretionary action on the part of management has to be reduced to an appropriate l e v e l i f f u l l disclosure i s to be made nearer r e a l i z a t i o n . 193 BIBLIOGRAPHY A. BOOKS American Accounting Association. Accounting and Reporting  Standards f o r Corporate F i n a n c i a l Statements and  Preceding Statements and Supplements. 1957 E d i t i o n . Madison, Wisconsin: University of Wisconsin, 1957. American Inst i t u t e of C e r t i f i e d Public Accountants. Account-ing P r i n c i p l e s Board. Accounting Research and Termin-ology B u l l e t i n s . F i n a l E d i t i o n . New York: AICPA, 1961. . Statement on Auditing Procedure No. 28 . "Special Reports." New York: AICPA, 1957. . Trends and Techniques. 18th E d i t i o n . New York: AICPA, 1964. . C o d i f i c a t i o n of Statements on Auditing Procedures. New York! AICPA, 1951. ' Canadian Institute of Chartered Accountants. Committee on Accounting and Auditing Research. Accounting and Audit-ing Practices. Toronto: CICA. . F i n a n c i a l Reporting In Canada. 5 th E d i t i o n . Toronto! CICA, 1963. Couchman, C. B. The Balance Sheet; Its Preparation, Con- tent and Interpretation. New York: The Journal of Accountancy, 1924. Floyd, Elizabeth R. Preparing the Annual Report. AMA Research Study 46. New York: American Management Association, i 9 6 0 . Foster, Louis Omar. Understanding F i n a n c i a l Statements  and Corporate Annual Reports. Philadelphia: Chilton Co., Book D i v i s i o n , 1 9 6 1 . Gilman, Stephen. Analyzing F i n a n c i a l Statements. Revised E d i t i o n . New York: The Ronald Press Co., 1934. Greendlinger, Leo. F i n a n c i a l and Business Statements. New York: Alexander Hamilton I n s t i t u t e , J . 9 2 2 . 194 I n s t i t u t e of Chartered Accountants i n England and Wales. Recommendations on Accounting P r i n c i p l e s . Moorgate Place, London, E.C.2, December 1958. Kennedy, Ralph Dale. F i n a n c i a l Statements: Form. Analysis  and Interpretation. Homewood, I l l i n o i s : R. D. Irwin, Palen, Jennie M. Report Writing for Accountants. Englewood C l i f f s , New Jersey: Prentice H a l l Inc., 1955. Paton, W. A. (ed.) Accountant's Handbook. 3rd E d i t i o n . New York: The Ronald Press Co., 1949. Rankin, Russell G. What's Behind A F i n a n c i a l Statement. Garden City, New York: Doubleday, 1949. : Rappaport, Louis H. SEC Accounting Practice and Procedure. New York: Ronald Press Co., 1956. B. ARTICLES "An Interesting Footnote", Journal of Accountancy. Vol. 86 (July 1948), p. 68. Anderson, W. R. "Should a Company T e l l ? Disclosure of Information to Employees", The Accountant, V o l . CXLV, No. 4504 ( A p r i l 18, 1961), pp. 403-7. Anson, Herrick. "Reporting P r a c t i c e s " , Journal of Account-ancy, Vol. 112 (October 1961), pp. 30-32. Aurbrey, Williams. "Trends i n Accounting Terminology and Form Revealed by 1946 Corporate Reports", Journal of  Accountancy. Vol. 84 (October 1947), pp. 3IO-317. Baker, Robert 0. "Your Annual Report - Tombstone or E v i -dence of L i f e " , The Controller , Vol. XX, No. 1 (January 1952), pp. 70-71. Bekaert, A. C. "What's Wrong With F i n a n c i a l Reporting?", The Accounting Review, Vol. XXVII, No. 1 (January 1952), pp. 57-62. Bullock, Clayton L. "Footnotes i n F i n a n c i a l Statement Pre-paration", Journal of Accountancy, Vol. 102 (July 1956), PP. 39-44. Campbell, D. "What Corporations Say about Annual Reports", Public Relations Journal. Vol. XV, No. 5 (May 1959), PP. 21-3. Chan, Stephen. "Notes to F i n a n c i a l Statements", Journal of  Accountancy, Vol. I l l (March 1961), pp. 54-58. 195 C o l l i n s , James H. "The Ordeal of the Annual Report", Public U t i l i t i e s F o rtnightly, Vol. LII, No. 11 (Novem-ber 19, 1953), PP. 772-774. Coutts, W. B. (ed.). "Corporate Annual Reports" i n Account-ing Research, Canadian Chartered Accountant, Vol. 80 (February 1962), pp. 161-166. ~~ ~"\ Crane, N. E. "Security Analyst Looks at Annual Reports", Journal of Accountancy, Vol. 105 (March 1958), pp. 31-36. Edwards, A. H. "Financial Statement Footnotes", Journal  of Accountancy, Vol. 112 (October 1961), p. 32. "Footnotes", Journal of Accountancy, Vol. 68 (August 1939), p. 74. "Footnotes i n Annual Reports Disclose Appraised Values of Fixed Properties", Journal of Accountancy, V o l . 92 (October 195D, p. W . [ Forderhase. "Notes to F i n a n c i a l Statements", Journal of Accountancy. V o l . 99-100 (October 1955), pp. 50-55. Khan, Lawrence R. "Inadequacies of F i n a n c i a l Reports", F i n a n c i a l World, Vol. 114, No. 17 (October 26, I960), pp. 64-68. Mulchary, Gertrude. "Notes to F i n a n c i a l Statements", Canadian Chartered Accountant, Vol. 71 (November 1957), pp. 451-454. Myers, John H. "Footnotes", Accounting Review, Vol. 76 (A p r i l 1959), pp. 381-388. Ross, M. C. C. "A Banker Looks at a Balance Sheet", Canadian Chartered Accountant. Vol. 81 (August 1962), pp. 153-158. Sparks, George 0. "Disclosure of Post Balance Sheet Events", Journal of Accountancy, Vol. 97 (May 1954), p. 605. Walter, James E. "The Treatment of 'Footnote' L i a b i l i t i e s " , Accounting Review, Vol. 30 (January 1955), pp. 95-102. C. UNPUBLISHED MATERIALS Bielby, Donald Irwin. An Analysis of Current Trends i n the Use of Notes to F i n a n c i a l Statements of Canadian  Organzations. B. Comm. Graduating Essay, UBC, October 1962;; 196 Secoy, T. Guthie. A Study of the Form, Content and Use of  Notes to F i n a n c i a l Statements i n Corporate Annual  Reports, Doctoral Dissertation, University of I l l i n o i s , 1959. D. MISCELLANEOUS Dominion of Canada Companies Act (1934). Fernard, James C. Handbook of Synonyms, Antonyms and  Prepositions, New York: Funk & Wagnalls Co. Inc. F i n a n c i a l Post Survey of I n d u s t r i a l 1963. Toronto: Maclean-Hunter Publishing Co. Ltd., I963. Kohler, E. L. A Dictionary f o r Accountants. 2nd Edition. Englewood C l i f f s , New Jersey: Prentice H a l l , 1957. Province of B r i t i s h Columbia. Companies Act. Webster's Seventh New Collegiate Dictionary. S p r i n g f i e l d , Massachusetts: G. & C. Marriam Co., 1963. 1 9 7 APPENDIX A CANADIAN COMPANIES WHOSE ANNUAL REPORTS FOR THE SPECIFIC YEARS INDICATED BELOW WERE INCLUDED IN THE SURVEY 1 9 6 3 1 9 5 8 19ft 1 9 4 8 1 9 V C a p i t a l Goods Industry Bartaco Industries Ltd. X Bird Construction Co. Ltd. " X X X X X Consolidated Glass Industries Ltd. X X X Dominion Magnesium Ltd. X X X X International Paints (Canada) Ltd. X X X X X Jefferson Lake Petro-Chemicals of Canada Ltd. X X S h e l l Canada Ltd. X Trans Mountain O i l Pipe Line Co. X X X Webb & Knapp (Canada) Ltd. X X Western P a c i f i c Products & Crude O i l Pipelines Ltd. X Consumption Goods Industry Belding C o r t i c e l l i Ltd. X X X X X Canadian Breweries Ltd. X X X X X Canadian Celanese Ltd. X X X X X Cunningham Drug Stores X X X X David & Frere Limited X X X X X D i s t i l l e r s Corporation-Seagram Ltd. X X X X X 196^ 1958 195^ 1948 19^8 Dover Industries Ltd. H. Corby D i s t i l l e r y Ltd. Imperial Tobacco Co. of Canada John Labatt Ltd. Laura Secord Candy Shop Ltd. Loblaw Companies' Ltd. (Orange) Crush International Ltd. Quinte Milk Products Ltd. Finance Industry Bank of Nova Scotia Ltd. Canada Permanent Mortgage Corporation Ltd. Delta Acceptance Corporation Ltd. Huron & E r i e Mortgage Corporation Ltd. Montreal City & D i s t r i c t Savings Bank Ltd. Traders Finance Corporation Ltd. Union Acceptance Corporation Ltd. Forest & A l l i e d Products Industry  Crown Zellerbach Canada Ltd. Great Lakes Paper Co. Ltd. X X X X X X X X X X X X X X X X X X X X X , X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X 1963 1958 195^ 1948 1938 Hendershot Paper Products Ltd. X X X X Hinde & Dauch Ltd. X X X X X Minas Basin Pulp & Power Company Ltd. X X X X X Sun Publishing Co. Ltd. X X X X X Toronto Star Ltd. X X Iron & Steel Industry Anthes Imperial Ltd. X X Canada Foundries & Forgings Ltd. X X X X X Canada Wire & Cable Company X X X X X Canadian General E l e c t r i c Co. Ltd. X X X X X Canadian Locomotive Co. Ltd. X X X X X Canadian Westinghouse Co. Ltd. X X X X X Dominion Bridge Co. Ltd. X X X X X F i t t i n g s Ltd. X X X X Massey (Harris) Ferguson Ltd. X X X X X Ontario Steel Products Co. Ltd. X X X X X Tappan Gurney Ltd. X X X Public U t i l i t y Industry Anglo-Canadian Telephone Co. Ltd. X X X X X B r a z i l i a n Traction Light & Power Co. Ltd. X X X X X Eastern Light & Power Co. Ltd. X X X X X International U t i l i t i e s Corporation Ltd. X X X X X 200 1963 1958 1953 19H8 19V New Brunswick Telephone Company Ltd. X X X X X Okanagan Telephone Co. Ltd. X X X X X Union Gas Co. of Canada Ltd. X X X X X Service Industry Agnew Surpass Shoe Stores Ltd. X X X X X Canadian P a c i f i c Railway Co. Ltd. X X X X X E l e c t r o l i e r Corporation Ltd. X Gordon Mackay & Stores Ltd. X X X X Hudson 1s Bay Company Ltd. X X X X X Okanagan Helicopters Ltd. X X X X P r o v i n c i a l Transport Co. Ltd. X X x X X Robin, Jones & Whitman Ltd. X X X X X Shoppers City Ltd. X White Pass & Yukon Corpor-ation Ltd. X X X Miscellaneous A l f r e d Lambert Incorporated Ltd.x X X X X Ash Temple Ltd. X X X Canadian Curtis Wright Ltd. X X Dominion O i l c l o t h & Linoleum Co. Ltd. X X X X X Du Pont of Canada Securities Ltd. X X X X X Hughes-Owens Co. Ltd. X Shully's Industries Ltd. X United Amusement Corporation Ltd. X X X X X 201 APPENDIX B EXAMPLES OF NOTES AND SOME CLASSIFICATIONS Exhibit A showed 13 integrated notes; Exhibits B-E showed 16 footnotes while 17 separate notes were presented i n Exhibit F. Another 15 notes were presented below to i l l u s t r a t e the c l a s s i f i c a t i o n s used. 1. Topics of Notes ( i ) Technical: (a) Technical, procedural: 6, 13, 22, 27, 30, 33. (b) Technical, l e g a l and contractual: 15, 17, 19, 41. (c) Technical, business and economic a f f a i r s , t h e i r e f f e c t s and explanations: 14, 42, 51. (d) Technical, audit: 48. ( i i ) F i n a n c i a l : (a) F i n a n c i a l , elaborative: 35, 37, 39, 40; 01-03; 09-12. (b) F i n a n c i a l , comparative: 20, 59, 60. (c) F i n a n c i a l , even d e s c r i p t i v e : 36, 56, 57. (d) F i n a n c i a l , others: 0 4 , 08, 23, 31, 32, 34. ( i i i ) D i r e c t i v e : 21, 47. 202 2. Periodic Relations of Notes ( i ) Current: 30-4-0, 4-3-4-6, 01-06. ( i i ) Past: 07,08, 15, 28. ( i i i ) Future: (a) Future Retroactive: 17, 4-9, 50. (b) Future, Non-retroactive: 25, 4-2, 51. 3. Regularity and Duration of Notes ( i ) Recurrent: 20-25, 30, 31, 33-37, 39-k3, 26-29, 4-6. ( i i ) Non-recurrent: 04-, 06, 08, 19, 32, 38. 4-. Quantitative Content of Notes ( i ) Quantitative: 17-20, 23-25, 26, 27, 32, 33, 35, 4-4-4-6. ( i i ) Non-quantitative: 01-06, 10-11, 15, 22, 28, 29, 31, 34, 4-3. 5. Multi-cased Notes: 16, 4-1, 4-2. 6. P o s i t i o n of Notes: Indention from Left Margin ( i ) Notes Indented: 01-13, 26-29. ( i i ) Notes Centred Across Page(s): 21, 4-7 ( i i i ) Notes Not Indented: 14-25, 30-4-6. 7. P o s i t i o n of Notes: Relationship to Right Margin ( i ) Terminated Some Distance from Money Columaa3; 01-13,22-25. ( i i ) Terminated beneath Money Columns: 14-20, 26-29, 30-4-6. 8. Typography of Notes ( i ) Undifferentiated Notes: 30-4-6, 14-17. ( i i ) D i f f e r e n t i a t e d by Smaller P r i n t s : 18-20, 26-29, 01-13. ( i i i ) D i f f e r e n t i a t e d by Different S t y l e : 22-25. 203 9. Use of Descriptive T i t l e s , Captions, Formal Headings ( i ) Notes with Descriptive T i t l e s r 14-17. ( i i ) Notes with Captions and/or Formal Headings: 01-13, 30-4-6. ( i i i ) Notes without Descriptive T i t l e s , Captions, Formal Headings: 01-13, 30-4^ 5. 10. Mechanics of Keying the Notes ( i ) Use of Descriptive Wordings: 26-27, 32-4-1, 44-4-6. ( i i ) Use of A s t e r i s k s : 52. ( i i i ) Use of Daggers: 55-(iv) Use of Parentheses: 58. 11. Notes Containing Cross References: 53, 5^ . 12. Form of Notes ( i ) Tabular: 09, 33, 44-, 4-5. ( i i ) Discourse: 30-32, 34-, 36-39. 13. Notes Numbered (or Lettered): 14-17, 22-29, 30-4-6. EXHIBIT! A ( page 204 ) T H E N E W - B R U N S W I C K T E L E P H O N E C O M P A N Y , L I M I T E D ^ T H E N E W B R U N S W I C K T E L E P H O N E C O M P A N Y , L I M I T E D A S S E T S t. . Dec. 31, 1958 F i x e d C a p i t a l (at cost) Land and Buildings $ 6,441,152 Telephone Plant • 51,426,859 f \ T C e n t r a l o f f i c e e q u i p m e n t , r i g h t o f w a y , p o l e s , c o n d u i t , c a b l e , w i r e a n d V-l- e q u i p m e n t o n c u s t o m e r s ' p r e m i s e s . ' General Equipment 1,341,073 S t o r e r o o m e q u i p m e n t , t o o l s , m o t o r v e h i c l e s a n d o f f i c e f u r n i t u r e a n d . e q u i p m e n t . T O T A L F I X E D C A P I T A L 59,209,084 L I A B I L I T I E S C u r r e n t A s s e t s Cash. Accounts Receivable and Other Current Assets * I? A m o u n t d u e f o r s e r v i c e ( l e s s p r o v i s i o n f o r u n c o l l e c t i b l e a c c o u n t s ) \JO a n d w o r k i n g a d v a n c e s t o e m p l o y e e s . Material and Supplies A / H e l d a t c o s t i n s t o r e r o o m s a n d y a r d s . P h y s i c a l i n v e n t o r i e s w e r e t a k e n d u r i n g S e p t e m b e r 1 9 5 8 . T O T A L C U R R E N T A S S E T S D e f e r r e d C h a r g e s Prepayments . I n s u r a n c e , c o s t o f d i r e c t o r i e s a n d o t h e r e x p e n s e s p r e p a i d a n d ,Qg a p p l i c a b l e t o p e r i o d s u b s e q u e n t t o D e c e m b e r 31. , x Unamortized Discount on Long Term D e b t . . . . . . . . . i 1,685,558 1,930,755 ! 'I 975,022 i 4,591,335 Other Deferred Charges M i s c e l l a n e o u s i t e m s , t h e d i s p o s i t i o n o f w h i c h h a d n o t b e e n 06. d e t e r m i n e d a t D e c e m b e r 3 1 . , T O T A L D E F E R R E D C H A R G E S 97,597, 102,306 ! 51,860 J - ' •"•! -. • • ' .-i . •••••} 251,763 Dec. 31, 1957 5 5,354,599 47,539,024 1,248,167 54,141,790 86,562 1,468,580 910,022 2,465,164 90,385 •_ \ 88,840 50,415 229,640 TOTAL ASSETS $ 64,052,182 ' $ 56,836,594 Signed on behalf of the Board of Directors: J . L . B L A C K , Director. LEONARD LOCKHART, Director. 14 Dec. 31, 1958 C a p i t a l S t o c k a n d S u r p l u s Common Stock—par value $10. per share J 25,618,630 A u t h o r i z e d 3 , 0 0 0 , 0 0 0 s h a r e s . A t D e c e m b e r 3 1 , 1 9 5 8 , t h e r e w e r e riry, 2 . 5 5 9 , 0 3 3 s h a r e s , o u t s t a n d i n g , f u l l y p a i d a n d i s s u e d , a n d ^ ' 2 , 8 3 0 s h a r e s s u b s c r i b e d , f u l l y p a i d , b u t u n i s s u e d . Premium on Capital Stock 125,043 QQ - A m o u n t r e c e i v e d i n e x c e s s o f p a r v a l u e . " Capital Surplus 93,230 Earned Surplus 1,960,382 "Balance credited for year 1958 $94,663 Miscellaneous Additions (net) 1958 3,079  T O T A L C A P I T A L S T O C K A N D S U R P L U S 27,797,285 L o n g T e r m D e b t 19,000,000 - :' D e b e n t u r e s : S e r i e s A — M a t u r i n g O c t . 1 , 1 9 7 3 — 3 - 3 / 8 % $ 1 , 5 0 0 , 0 0 0 n o S e r i e s B — M a t u r i n g A u g . 1 , 1 9 7 4 — 3 - 3 / 8 % 2 , 0 0 0 , 0 0 0 •J* S e r i e s C — M a t u r i n g N o v . 1 5 , 1 9 7 7 — 3 - 3 / 8 % 2 , 0 0 0 , 0 0 0 S e r i e s D — M a t u r i n g J u l y 1 , 1 9 7 2 — 4 - 1 / 2 % 3 , 5 0 0 , 0 0 0 S e r i e s E — M a t u r i n g D e c . 1 , 1 9 7 0 — 4 - 3 / 4 % 2 , 0 0 0 , 0 0 0 . - S e r i e s F — M a t u r i n g A p r . 1 , 1 9 7 6 — 4 - 1 / 8 % 5 , 0 0 0 , 0 0 0 S e r i e s G — M a t u r i n g A p r . 1 , 1 9 7 9 — 5 - 1 / 8 % 3 , 0 0 0 , 0 0 0 C u r r e n t a n d A c c r u e d L i a b i l i t i e s Bank Loan , Accounts Payable 761,567 A m o u n t s o w i n g f o r s u p p l i e s , p a y r o l l s a n d o t h e r i t e m s . Income and Municipal Taxes 626,922 Dividend payable January 15 - 383,855 Interest Accrued on outstanding Debentures . 147,135 T O T A L C U R R E N T A N D A C C R U E D L I A B I L I T I E S 1,919,479 D e p r e c i a t i o n R e s e r v e 11,948,930 U p r o v i s i o n xo m e e t l o s s o f i n v e s t m e n t i n t e l e p h o n e p r o p e r t y u p o n i t s u l t i m a t e r e t i r e m e n t f r o m s e r v i c e . D e f e r r e d C r e d i t s < Unamortized Premium on Long Term Debt | 20,991 Employees'Stock Plan ! 201,381 V o " I n s t a l m e n t s p a i d b y e m p l o y e e s a n d i n t e r e s t t h e r e o n . Income Tax: 1 3,155,210 , - D e f e r r e d i n c o m e t a x a p p l i c a b l e t o f u t u r e y e a r s d u e t o • „ •;. t ' : d e p r e c i a t i o n c l a i m e d f o r t a x p u r p o s e s b e i n g i n e x c e s s o f t h a t J . O " . ' ^ ' , c h a r g e d t o o p e r a t i n g e x p e n s e s . Other Deferred Credits . 8.906 T O T A L D E F E R R E D C R E D I T S 3,386,488 TOTAL LIABILITIES * 64,052,182 Dec. 31, 1957 $ 23,225,320 119,982 93,230 1,862,640 25,301,172 16,000,000 462,000 1,335,719 99,915 347,999 108,698 2,354,331 10,525,104 22,320 165,726 2,460,343 7,598 2,655,987 % 56,836,594 Submitted with our accompanying report dated January 20, 1959. (Signed) Cox & HAMMETT, Chartered Accountants. G . C. T U R X E R , Comptroller. 15 CTS LISV3ITI and Subsidiaries in o CM (D (fl-ft) EH a C O N S O L I D A T E D B A L A N C E S H E E T December 31, 1958 ASSETS C U R R E N T A S S E T S -Cash on hand and in banks $ 3,521.61 Accounts receivable — Canadian Tappan Stove, L t d . (parent) — assigned 237,666.98 Inventories of raw materials, goods in process and finished goods (at the lower of cost or market values) - pledged 1,106,154.33 Prepaid insurance and other expenses............. 36,048.39 T O T A L C U R R E N T A S S E T S 81,383,391.31 O T H E R ASSETS Cash with Trustee for 4%% First Mortgage • Sinking Fund bonds — Series A Sinking fund $ 5,518.10 Release of property account '. ; i 36,502.96 j 8 42,021.06 Cash surrender value of life insurance 27,183.11 69,204.17 P R O P E R T Y , P L A N T A N D E Q U I P M E N T As valued by the directors of the Company as at January 29, 1951, being approximately 8500,000.00 less than the value appraised by Stone and Webster Engineering Corporation at May 1, 1949, plus subsequent additions at cost and less disposals and subsequent depreciation: Land „. 8 55,279.29 Buildings, machinery and equipment .*. 1,039,749.11 81,095,028.40 Less allowances for depreciation 193,311.19 901,717.21 • 82,354,312.69 L I A B I L I T I E S ' C U R R E N T LIABILITIES Bank loans - secured 8 492,429.36 Accounts payable and accrued charges 205,536.92 Accrued interest on first mortgage bonds ; 5,231.25 Taxes other than on income 35,571.79 Due to employees 42,165.43 Income tax payable — estimated 1 4,900.00 Provision for sinking fund requirements of First Mortgage Sinking Fund bonds — Series A 32,809.50 : T O T A L C U R R E N T L I A B I L I T I E S ' 8 818,644.25 A D V A N C E FROM C A N A D I A N T A P P A N S T O V E , L T D . -(parent (Note A) ; •. 200,000.00 L O N G - T E R M D E B T ' ' J 454% First Mortgage Sinking Fund bonds: Authorized .'. „ 81,000,000.00 Issued: X Series A -. • 8 500,000.00 Redeemed 190,000.00 \ ' 8 310,000.00 Less sinking fund requirements \ ; 32,809.50 , 277,190.50 C A P I T A L Capital stock: • . * '' Authorized: ' •. 50,000 Si.60 Cumulative Redeemable Sinking Fund Preferred Shares'having a par value of 830.00 4 each, redeemable at 831.50 per share, of which 3,750 shares have been redeemed and cancelled _ . • _ 300,000 common shares without nominal or par value Outstanding and fully paid: P r e f e r r e d - 21,250 shares '. 8 637,500.00 Common - 100,000 shares 300,000.00 • ' . • 8 9 37,500.00 Revaluation surplus 593,826.02 Deficit (472,848.08) 1,058,477.94 82,354,312.69 N O T E A : Under terms of an agreement dated June 11, 1958, between Gurney Products Limited, Canadian Tappan Stove, L t d . 1 ? and The Canadian Bank of Commerce, repayment of the advance of 8200,000.00 is restricted. •I c N O T E B: The charter and trust deed to secure the first mortgage bonds contain restrictions respecting the payment of dividends on . • the common shares in certain events. N O T E C : Dividends on the preferred shares are in arrears to the extent of 82.80 per share amounting to 859,500.00. Proceedings •j^g have not yet been taken to reduce the authorized capital of the Company by the amount of the preferred shares re-deemed and cancelled. ' N O T E D: There remains to be set aside by May 1, 1959, 86,402.16 as the current year requirement of a sinking fund for the i rj retirement of preferred shares, under the terms of issue of such shares. • • Approved on behalf of the Board: W.R. T A P P A N Director . . . . . . , R . M . L A M B Director •• M a s s e y - F e r g u s o n Limited 18-19 20 YEAR E N D E D OCTOBER 31 , 1958 (WITH C O M P A R A T I V E FIGURES FOR 1957) Net sales ......... Add: ?• Interest and finance charges earned, etc... . . Profit on sale of capital assets.............V., .'.:. .................. Deduct: : ' '• •'; • •'••:':;\.\ ':/ : Cost of goods sold -. '... '•.... ' . . : . , . . . . . . . . . . . . : ; ' : '>: : :^ r, . Inventory write-offs and liquidation losses...: •/...... . ...7^ .\ Marketing expenses , ,. .. ,;V.... General and administrative expenses...... J., '. .•:•.'•:,>>;;.'...'.-.:'••• Engineering expenses .;.:...'.., A-::=:r i : Interest on long term debt :.• ::.V:^:.:y:>;..'r.' . Minority interest (dividends on preferred shares of subsidiaries)...'.... .•;:r.r^ 5:.;.V.V'.'::v. Bank interest.., ' . . . Exchange adjustments (Note 1)........7. .'. r.,... l\ •. . Profit before income taxes. '..... 7 ......: Income taxes , ... Tax credits (Note 2) ....T Net income or (loss) for the year SUPPLEMENTARY INFORMATION The amounts indicated by * (together with $2,577,141 included above in 1957 marketing expenses, representing costs of changeover from dual to single product line distribution) were shown in the 1957 accounts as extra-ordinary charges or credits. The following amounts were paid during the year ended October 31,1958 to the directors, executive officers and solicitors of the Parent Company: Fees to directors not holding salaried employment $36,505; remuneration"; .< to executive officers including directors holdingsalaried employment, and to the Company's solicitors $654,194. Depreciation, and amortization of production toolingincludedaboveamounted-to $8,584,503inl958and $8,367,023 in 1957. g"- : $36l;162,(M2 -"35,270.702 10,027,140 '::y:' 7,117,815 p- • 3,403,024 jjs>: 304,630 g l . 2,617,990 ^$421 ,352 ,761 * w ; 21,712,151 ' | - 12,086,869 " 1 (3,400,000) |> | $ 13,025,282 Balance at beginning of year Add net income or (loss) for the year Deduct: Dividends on preferred shares (at the rate of 41/2%). Dividends on common shares (40?! per share)....... Balance at end of year. 21 (see accompanying notes to financial statements) $440109.455 - : 2,621,560 V .333,897 y $443,064,912~ ' 1,449,418 :sl,,.-.v < :.' ' . ft\$.'85,139f807 13,025,282 1 ~ 98,165,089 i • $ 1,094,094 3,818,441 | f e $ ~ 4,912,535. ^$• '93 ,252 ,554 $412,411,468 ; 2,959,997 552,267 ;$415,923,732 :. $350,538,619 •-: 8,701,372* . '• : 31,601,372 ' !; 9,022,577 6,970,630 '•• 3,408,082 224,950 , 1,893,611 2,958,719* $415,319,932 , $ 603,800 ;.' 10,337,493 • (5,046,352)*" : $"(4 J37\341) $ 94,785,949 (4,737,341)' $ 90,043,608 $ 1,101,273 • 3,807,528 • $ 4,908,801 ;$ 85,139,807" WEBB & KNAPP (CANADA) LIMITED AMD WHOLLY OWNED SUBSIDIARY COS. ' CONSOLIDATED (PARTIAL) BALANCE SHEET AS AT DECEMBER 1958. ' LIABILITIES CURRENT LIABILITIES Bank loan (secured) Accounts payable and accrued liabilities LONG-TERM DEBT 9.08% 25-year mortgage due 31st May 1982, repayable in equal monthly instalments of $20,814 combining principal and interest . . . ; . . . . sinking fund notes due 1st November 1976, sinking fund payments lo commence in 1960 500,000 749,684 2,451,669 25,000,000 1,249,684 27,451,669 r> o OJ co «> cd ft EH M PP SHAREHOLDERS' EQUITY Capital slock— Authorized— | 2,000,000 redeemable preferred shares of $5 par value . ' 10,000,000 common shares of $1 par value Issued and fully paid— 200,000 5% preferred shares series A, non-cumulative to 2nd July 1960 and cumulative thereafter 2,737,000 common shares—see note 2 (2,000 common shares were issued during the year for cash) Premium on issue of common shares Deficit NOTES 22 • 23 25 1. The basis of consolidation for the year 1958 has been changed in that the accounts of the partly-owned subsidiary companies are no longer consolidated. 2. The company has reserved 3,010,000 common shares in respect of stock purchase warrants. 3. Options have been granted to certain officers- and employees of the company to purchase 61,000 common shares at prices varying from 81 to 84 per share, exercisable at various dates to 31st 1 March 1967. 4. The company has a contingent liability in respect of a guarantee of $1,460,000 to certain debentureholderg of partly-owned subsidiary . companies. 10,000,000 10,000,000 $20,000,000 1,000,000 2,737,000 3,737,000 4,000 3,741,000 166,117 3,575,883 $32',277,2S6 G O R D O N EXHIBIT E (page208) M A C K A Y & S T O R E S L I M I T E D ( I n c o r p o r a t e d u n d e r t r i e | ; l v v s 0 f O n t a r i o ) a n d i t s s u b s i d i a r i e s C O N S O L I D A T E D B A L A N C E S H E E T J A N U A R Y 3 1 , 1 9 6 3 ( w i t h c o m p a r a t i v e figures a t J a n u a r y 3 1 , 1 9 6 2 ) . A S S E T S 1 9 6 3 C u r r e n t a s s e t s : C a s h $ 1 5 9 , 7 4 9 I n v e s t m e n t i n l i s t e d s t o c k s , a t c o s t l e s s a m o u n t s w r i t t e n o f f ( m a r k e t v a l u e , 1 9 6 3 $ 1 1 3 , 3 1 2 , 1 9 6 2 $ 5 9 , 0 0 0 ) 1 0 0 , 2 5 8 A c c o u n t s r e c e i v a b l e 1 , 7 7 9 , 1 2 4 I n v e n t o r i e s o f m e r c h a n d i s e v a l u e d a t t h e l o w e r o f c o s t o r m a r k e t 2 , 8 1 5 , 3 5 8 S t o r e s u p p l i e s , p r e p a i d i n s u r a n c e a n d s u n d r y a s s e t s 7 8 , 5 1 0 T o t a l c u r r e n t a s s e t s $ 4 , 9 3 2 , 9 9 9 P r o p e r t i e s a n d e q u i p m e n t : (f B u i l d i n g s a n d e q u i p m e n t , a t c o s t $ 6 , 3 7 3 , 2 9 0 L e s s a c c u m u l a t e d d e p r e c i a t i o n '.. 3 , 3 7 4 , 2 6 4 $ 2 , 9 9 9 , 0 2 6 L a n d , a t c o s t 8 6 2 , 1 7 7 T o t a l p r o p e r t i e s a n d e q u i p m e n t $ 3 , 8 6 1 , 2 0 3 $ 8 , 7 9 4 , 2 0 2 L I A B I L I T I E S A N D S H A R E H O L D E R S ' E Q U I T Y C u r r e n t l i a b i l i t i e s : B a n k b o r r o w i n g s $ 1 , 5 5 7 , 4 1 0 O w i n g f o r m e r c h a n d i s e , w a g e s ' e t c 6 8 9 , 0 4 2 T a x e s p a y a b l e 7 6 , 0 1 3 M o r t g a g e p r i n c i p a l d u e w i t h i n o n e y e a r .v 1 0 8 , 0 0 0 T o t a l c u r r e n t l i a b i l i t i e s $ 2 , 4 3 0 , 4 6 5 M o r t g a g e p a y a b l e > . . . . . . . S h a r e h o l d e r s ' e q u i t y : C a p i t a l — A u t h o r i z e d : 3 0 0 , 0 0 0 C l a s s A s h a r e s w i t h o u t n o m i n a l o r p a r v a l u e , e n t i t l e d t o a f i x e d c u m u l a t i v e d i v i -d e n d o f f i f t y c e n t s p e r s h a r e p e r a n n u m i n p r i o r i t y t o d i v i d e n d s o n t h e C l a s s B s h a r e s 3 0 0 , 0 0 0 C l a s s B . s h a r e s w i t h o u t n o m i n a l o r p a r v a l u e ( n o t e 1 ) * ' I s s u e d : / 2 0 1 , 6 0 0 C l a s s A s h a r e s ) * 3 6 0 0 0 0 2 0 1 , 6 0 0 C l a s s B s h a r e s \ R e s e r v e f o r c o n t i n g e n c i e s 1 0 0 , 0 0 0 C o n t r i b u t e d s u r p l u s ( u n c h a n g e d d u r i n g y e a r ) 2 , 6 7 4 , 4 9 4 E a r n e d s u r p l u s 3 , 2 2 9 , 2 4 3 T o t a l s h a r e h o l d e r s ' e q u i t y $ 6 , 3 6 3 , 7 3 7 $ 8 , 7 9 4 , 2 0 2 1 9 6 2 $ 8 4 , 7 1 6 1 0 0 , 2 5 8 1 , 8 9 4 , 7 8 4 3 , 4 6 8 , 6 1 9 9 4 , 7 2 6  $ 5 , 6 4 3 , 1 0 3 $ 6 , 2 4 9 , 8 7 0 3 , 4 2 2 , 8 6 8 $ 2 , 8 2 7 , 0 0 2 8 9 1 , 4 8 5 $ 3 , 7 1 8 , 4 8 7 $ 9 , 3 6 1 , 5 9 0 $ 1 , 6 1 3 , 2 6 5 1 , 0 9 5 , 9 7 4 5 8 , 5 3 0 1 8 , 0 0 0  $ 2 , 7 8 5 , 7 6 9 v $ 1 0 8 , 0 0 0 $ 3 6 0 , 0 0 0 1 0 0 , 0 0 0 2 , 6 7 4 , 4 9 4 3 , 3 3 3 , 3 2 7 $ 6 , 4 6 7 , 8 2 1 $ 9 , 3 6 1 , 5 9 0 S T A T E M E N T O F C O N S O L I D A T E D I N C O M E A N D E A R N E D S U R P L U S Y E A R E N D E D J A N U A R Y 3 1 , 1 9 6 3 ( w i t h c o m p a r a t i v e figures f o r t h e y e a r e n d e d J a n u a r y 3 1 , 1 9 6 2 ) 1 9 6 3 1 9 6 2 I n c o m e f r o m o p e r a t i o n s b e f o r e d e p r e c i a t i o n a n d i n c o m e t a x e s $ 5 8 8 , 2 9 3 $ 4 9 3 , 5 3 4 D e p r e c i a t i o n 4 0 6 , 4 3 4 3 8 3 , 3 3 7 I n c o m e f r o m o p e r a t i o n s b e f o r e i n c o m e t a x e s $ 1 8 1 , 8 5 9 $ 1 1 0 , 1 9 7 I n c o m e t a x e s ( n o t e 2 ) 7 0 , 8 3 2 3 4 , 5 1 0 N e t i n c o m e f r o m o p e r a t i o n s $ 1 1 1 , 0 2 7 $ . 7 5 , 6 8 7 - -N o n - r e c u r r i n g l o s s o n l i q u i d a t i o n o f T o r o n t o w h o l e s a l e d i v i s i o n l e s s a p p l i c a b l e i n c o m e t a x r e d u c t i o n i n 1 9 6 3 ( 1 3 , 5 1 1 ) ( 1 9 3 , 8 3 8 ) P r o f i t o n d i s p o s a l o f l a n d , b u i l d i n g s a n d e q u i p m e n t 1 5 , 8 1 4 N e t i n c o m e ( l o s s ) f o r t h e y e a r $ 9 7 , 5 1 6 - $ ( 1 0 2 , 3 3 7 ) -E a r n e d s u r p l u s a t b e g i n n i n g o f y e a r 3 , 3 3 3 , 3 2 7 3 , 7 8 7 , 2 6 4 ' _ . .. $ 3 , 4 3 0 , 8 4 3 $ 3 , 6 8 4 , 9 2 7 , D i v i d e n d s p a i d t o s h a r e h o l d e r s : O n C l a s s A s h a r e s — 5 0 ^ p e r s h a r e .' $ 1 0 0 , 8 0 0 $ 1 0 0 , 8 0 0 O n C l a s s B s h a r e s — 5 0 ^ p e r s h a r e 1 0 0 , 8 0 0 1 0 0 , 8 0 0 S p e c i a l p r o v i s i o n f o r l o s s o n l i q u i d a t i o n o f w h o l e s a l e o p e r a t i o n s o f G o r d o n M a c k a y E a s t e r n L i m i t e d 1 5 0 , 0 0 0 $ 2 0 1 , 6 0 0 $ 3 5 1 , 6 0 0 E a r n e d s u r p l u s a t e n d o f y e a r . . . $ 3 , 2 2 9 , 2 4 3 $ 3 , 3 3 3 , 3 2 7 Notes: 1. Under the company's Incentive Stock Option Plan, options are outstanding at $10 per share 26 on 7,000 shares of the presently unissued Class B shares. 2. Taxes payable on income for the year have been reduced by approximately $1 1,000 through gi^" tax losses carried forward from prior years. Further tax losses aggregating approximately $588,700 are available to reduce future taxable income in certain of the subsidiary companies. 3. The companies have entered into a number of leases for retail stores, some of which extend 28 over periods up to 20 years. 4. Two subsidiary companies have been named co-defendants with another company in an action „Q for breach of contract and conspiracy to induce a breach of contract. In the opinion of the **** companies' legal advisers the probability of substantial damages being assessed against the • companies as a result of this action is remote. No provision for loss arising from this suit has been made in the accounts. O n behalf of the Board, D . M . W O O D S , D i r e c t o r J . W . W A L K E R , D i r e c t o r A U D I T O R S ' R E P O R T T o the Shareholders of Gordon Mackay & Scores Limited: We have examined the consolidated balance sheet of Gordon Mackay & Stores Limited and its subsidiaries as ac January 3 1, 1963 and the statement of consolidated income and earned surplus for the year ended on that date. Our examination included a general review of the accounting procedures and such tests of accounting records and other supporting evidence as we considered necessary 'in the circumstances. In our opinion the accompanying consolidated balance sheet and statement of consolidated income and earned surplus present fairly che consolidated financial position of the companies as at January 51 , 1965 and the results of their operations for the year ended on that date, in accordance with generally accepted accounting principles applied on a basis consistent with that of the preceding year. Toronto, Canada, C L A R K S O N , G O R D O N H C O . April 2, 1963. Chartered Accountants. EXHIBIT' E ( page (8) 308a) 37 P R E M I U M P A I D O N P U R C H A S E O F S H A R E S O K • A C Q U I R E D S I N C E 31ST O C T O B E R 1943 T h i s account is being amort ized at the rate of 4 9c B R E W I N G S U B S I D I A R I E S per a n n u m on the gross p r e m i u m . ;38 C A N A D I A N B R E W E R I E S L I M I T E D A N D S U B S I D I A R Y C O M P A N I E S Explanatory Notes to Financial Statements at the 31st October 1948 .41 V) (2) V) B A S I S O F C O N V E R S I O N T O C A N A D I A N F U N D S T h e accounts of the U n i t e d States subsidiaries are included at the par of exchange. D A T E S O F A C C O U N T S O F S U B S I D I A R I E S T h e accounts of a l l subsidiaries consolidated are as at the 31st October , except those of B r e w i n g C o r p o r a t i o n of A m e r i c a and V i c t o r y M i l l s L i m i t e d , w h i c h are as at the 3Qth September. .5] I N C O M E A N D E X C E S S P R O F I T S T A X E S R E F U N D A B L E - . T h i s amount comprises 5191,693 C a n a d i a n Excess Profits taxes refundable the 31st M a r c h 1949 and Jl 35,033 estimated overpayment of U n i t e d States income taxes. " . . . . . . I N V E N T O R I E S ' - '•;•' ' •••• '>•. ' ' . ; ' 5" ' ; v ' ^ ^ ^ - . ; > ; v Inventories are s u m m a r i z e d as follows, according to the bases of valuat ion. . • . ' ' . ' A T T H E L O W E R OF C O S T OR M A R K E T : " . . . . • Beer a n d ale—finished and in process . . V .;.;•' ' . . . . $ O t h e r finished products '; ...-.'•: ;". •:,".'.'....." J . ' . " M a t e r i a l s a n d s u p p l i e s . . . . . . . . . . . . . . . . . . . . . . . . . . ; Non-re turnable conta iners—United States subsidiary A T ESTIMATED V A L U E W H I C H IS NOT IN EXCESS OF R E P L A C E M E N T C O S T 5 ,538,789 682 ,449 4 ,394 ,026 104,417 30; 32! 33 (9) 4J 2% N O T E P A Y A B L E . T h e 4 j^9r note payable matures on the 30th November 1949 and is secured by a floating charge on the assets other than fixed assets of the C a n a d i a n subsidiaries and the pledging of shares of affiliated companies included at a i book value of approximately S3,000,000. O n the 1st Noveml>er 1948 the C o m p a n y voluntari ly repaid St,000,000 of the ; pr inc ipa l amount of this note. (70) D E B E N T U R E S A N D N O T E S P A Y A B L E T h e serial notes are payable in instalments in U n i t e d States funds on the 15th December 1949 and 1950. T h e 3 % and 3 K % notes have been issued by Brewing C o r p o r a t i o n of A m e r i c a and mature in monthly instal-ments of S50.000 U n i t e d States funds from the 31st December 1948 to the 30th September 1949, and thereafter in annual instalments of 5500,000 on the 15th October 1950 to 1953 and Sl.SOO.OOO on the 15th October 1954. T h e loan agrce-"39 ment in connection with these notes as amended as at the 30th September 1948 includes, among other things, certain ' ' covenants and restrictions applicable to Brewing Corporat ion of A m e r i c a with respect to (a) the l imitat ion of expendi-"-• ture for fixed and non current assets; (b) the maintenance of consolidated net current assets as defined; (c) the l imitat ion of consolidated current l iabilit ies as def ined; . (d) the creation of an earnings recapture fund after the consolidated net income subsequent to the 30th September 1948 exceeds a stated amount ; (e) dividend restrictions as described in Note 12. ; T h e 3 % serial debentures mature i n annual instalments of 5500,000 on the 1st M a r c h 1949 to 1954 inclusive. i ' T h e T>Yi% s inking fund debentures mature on the 1st M a r c h 1967. S inking fund payments of S500.000 per a n n u m are to commence on the 1st M a r c h 1955. (11) R E S E R V E F O R L O S S O N D E M O L I T I O N A N D D I S P O S A L O F E Q U I P M E N T T h i s reserve was created i n 1947 to provide for the estimated loss incident to a plant modernization programme of , the U n i t e d States brewing subsidiary. 3 4 0 Balance at the 31st October 1947. . $750,000 i A m o u n t appl ied i n reduct ion of 1948 charges to profit and loss account incident to plant •x • modernizat ion programme 600,000 • Balance being estimated reserve r e q u i r e d . . . . . -.•': .". $150,000 (72) D I S T R I B U T A B L E S U R P L U S \ ^ T h e trust deed securing the debentures contains a provision whereby dividends may not be declared or paid w h i c h w o u l d reduce the consolidated net current assets below a certain level . A t the 31st October 1948 the net current assets were in excess of the trust deed requirements. Included in surplus is an amount of $2,152,614 representing the Company ' s share of the profits of the U n i t e d States subsidiaries since acquisit ion to the 31st October 1948. T h e loan agreement governing the 3 % and 3 V i % notes provides among other things that d i v i d e n d payments f rom Brewing Corpora t ion of A m e r i c a are restricted to 3 3 J ^ % of the consolidated net income for the immediate ly preceding fiscal year and then only if such payment does not re-| duce consolidated net current assets as at the close of the immediate ly preceding fiscal year below 52,500,000. T h e i loan agreement governing the.3 V i % serial notes provides that dividends received from Brewing Corporat ion of A m e r i c a ! shall be applied first i n payment of interest and expenses, and then in reduction of such notes. . . j (W) C O M M I T M E N T S A N D G U A R A N T E E S — -\ A t the balance sheet dates the addi t ional expenditures required to complete construction programmes aggregated ! 42 approximately $673,500. Miscel laneous guarantees and commitments totalled approximately $1,000,000. ! ( / ^ C O N S O L I D A T I O N . " . ' ; / T h e principle fol lowed w i t h respect to inclusion or exclusion of companies on consolidation has been to include I ' a l l brewing companies i n w h i c h the C o m p a n y owns a majority interest, and a l l companies, not irTthe same l ine of business, 43 w h i c h the C o m p a n y owps outr ight . . . . . . • ;• v •. >. 1 (IS) P R O F I T A N D L O S S A C C O U N T j ' T h e Profit and Loss figures for 1947 shown for comparat ive purposes have been amended to include the fol lowing items w h i c h were shown as adjustments to Distr ibutable Surplus i n the 1947 accounts: Income deductions , - . .• V . ' . "• . 10,719,681 C o n t a i n e r s — C a n a d i a n subsidiaries 1 ,092,828 (5) D O M I N I O N M A L T I N G C O M P A N Y L I M I T E D $11,812,509 T h e C o m p a n y held 92.1 % of the outstanding common shares of this subsidiary at the 31st October 1948. Profits f o r the year have been taken u p to the extent of dividends received. Since acquisi t ion, the C o m p a n y ' s equity i n this subsidiary has increased as a result of profits less dividends by an amount of $105,400. T h e a n n u a l report of this subsidiary for the year ended the 31st J u l y 1948, is enclosed herewith. 44 Provision for demol i t ion and disposal of plant and equipment i n connection w i t h expansion of U n i t e d States subsidiary (before minor i ty interest which is i n -cluded under that heading) Balance of expenses i n connection w i t h pr ior issues of debentures now redeemed Provis ion for income and excess profits taxes (6) F I X E D A S S E T S F i x e d assets arc valued at cost less reserves for depreciation w i t h the exception of the f o l lo wing Book V a l u e after - Deprec ia t ion C a n a d i a n assets valued on the basis of independent appraisals made in 1939 and 1945 $5,731,000 U n i t e d States assets valued at amounts determined i n 1936 by the Board of Directors ". 293,861 35 Net credit adjustment of pr ior periods' provision for income taxes less expenses i n . • connection therewith , 34! (16) D E P R E C I A T I O N . T h e provision for depreciation for the year comprises the fo l lowing : A m o u n t charged at n o r m a l rates '. . . : Special depreciation charged i n excess of n o r m a ! rate: as permitted by the C a n a d i a n 45 Income W a r T a x A c t Depreciation on inactive returnable containers - U n i t r d S'.?.tcs subsidiary $6,024,861 . „ T h , ? reserve for depreciat ion includes $1,229,957 special addi t ional depreciat ion accumulated as permitted by the C a n a d i a n Income W a r T a x A c t . (7) S U N D R Y P R O P E R T I E S A N D I N V E S T M E N T S V- ' " D u r i n g the year an a m o u n t of S95.180 representing the loss on the l i q u i d a t i o n of the investment i n a former suosidmry was charged to the Reserve for Sundry Properties and Investments. 3 g $ 750,000 202,054 $ 952,054 $1,129,659 $1,844,216 703,196 576,236 $3,123,648 (17) T h e 1948 provision for income and excess profits taxes is after deduct ing an estimated tax credit of approximately j $350,000 resulting from the carry back to prior years of 1948 losses of the U n i t e d States brewing subsidiary. T h e 1917 j 46 provision has been adjusted as indicated in Note 15. . • 209 EXAMPLES OF NOTES Note No. k-7 Footnote to 1963 Consolidated Balance Sheet of B r a z i l i a n Traction, Light and Power Company, Ltd.: mi  7 1262 (Total L i a b i l i t i e s and Shareholders' Equity) $1,068,102,696 $l,086,288,*+06 "(See Accompanying Notes)" Note No. kQ Footnote to 1953 Balance Sheet of Canadian General E l e c t r i c Company, Ltd.: "(Subject to the accompanying report of Peat, Marwick, M i t c h e l l & Co., Auditors, dated March 18, 195^)." Note No. k-9 Note i n Statement of Notes to F i n a n c i a l Statement f o r the year 1953 of International U t i l i t i e s Corporation and Sub-s i d i a r i e s : Note 7 "Income tax returns of the parent company and subsidiaries f o r the years 1951? 1952 and 19535 and i n the case of certa i n subsidiaries f o r the years 19^ 9 and 1950? are subject to review by the taxing a u t h o r i t i e s . " 210 Note No. 50 Note i n Statement of Notes to F i n a n c i a l Statements f o r the year 1958 of International U t i l i t i e s Corporation and Subsidiaries: Note 5 "Under a change i n Canadian tax regulations e f f e c t i v e January 1, 195*+* the subsidiaries are permitted to claim depreciation at maximum rates allowable for tax purposes without chang-ing such depreciation i n t h e i r accounts. Accordingly, the subsidiaries are claiming additional depreciation f o r tax purposes of approximately $1,763,000 f o r 1958. As a r e s u l t the provision for Canadian income taxes has been reduced by about $785,000 i n 1958, $679,500 i n 1957 and an aggregate of $3,309,000 to December 31, 1958. "Income tax returns of the parent company and subsidiaries f o r the years 1955 to 1958 i n -clu s i v e , and of one subsidiary f o r the year 195^ , are subject to review by the taxing a u t h o r i t i e s . " Note No. 51 Separate Note i n Statement of Notes to Consolidated F i n a n c i a l Statements as at December 31, 1963 f o r Okanagan Helicopters Ltd. and Subsidiaries: 211 "3. On January 31, 196*+ "the company entered i n t o an agreement wi t h the d i r e c t o r s and share-h o l d e r s of P a c i f i c H e l i c o p t e r Holdings L t d . to a c q u i r e a l l of the ou t s t a n d i n g shares of th a t company, the purchase p r i c e to he as f o l l o w s : "90,501 common shares without par va l u e -by the a l l o t m e n t and i s s u e of 11 common shares of the company f o r every 20 shares of P a c i f i c H e l i c o p t e r Holdings L t d . "22,500 6 1/2$ c o n v e r t i b l e non-cumulative redeemable p r e f e r r e d shares of $10.00 par value per share - by the payment of $75,000.00 i n cash and the i s s u e of $150,000.00 6% promissory notes payable i n two equal i n s t a l -ments on January 31, 1965 and 1966." Note No. 52 The f o l l o w i n g f o o t n o t e was found appended to the Balance Sheet of Dominion Bridge Company L t d . as a t October 31, 1953: Current Assets -Government and other bonds and s e c u r i t i e s . $907,711. "$25,000 par va l u e Government of Canada bonds are d e p o s i t e d w i t h the Department of Transport, Ottawa, :as s e c u r i t y f o r the performance of a c o n t r a c t . " 212 Note No. 53 Footnote to the 1963 Consolidated Balance Sheet of Anglo-Canadian Telephone Company and Subsidiary Companies: "The accompanying notes form an i n t e g r a l part of these f i n a n c i a l statements." Note No. 5k Footnote to the 1963 Statement of Consolidated Earnings Retained and Used i n the Business, of Okanagan Helicopters Ltd. and Subsid i a r i e s : "See accompanying notes to f i n a n c i a l statements." Note No. 55 Footnote to the 1938 Consolidated Balance Sheet of Dom-in i o n Bridge Company Ltd.: Current Assets -+ Government and other Bonds and Securities (Approximate market value $2,951,291.57). . . . . . . . . $2,6k5,799-11 "+ $108,000 par value Bonds are held, by a customer's nominee as security on a tender." Note No. 56 Footnote to 1963 Consolidated Statement of Source and Use of Funds of Ontario Steel Products Company Ltd.: "Note: Debentures purchased and cancelled during the period amounted to $195,000 bringing the t o t a l purchased and cancelled i n advance of 213 of Sinking Fund requirements to $325,000." Note No. 57 Footnote to 1958 Consolidated Statement of Earned Surplus of Hinde and Dauch Paper Company of Canada Ltd.: "Note: Dividends shown above are those declared during the f i s c a l years ended October 31 • Dividends paid i n each f i s c a l year amounted to $6^ 6,000 at the annual rate of $1.80 per share." Note No. 58 Footnote to 1958 Consolidated Statement of P r o f i t and Loss of Consolidated Glass Industries Ltd. and Subsid-i a r y Companies: "( ) denotes red f i g u r e s . " Note No. 59 Separate Note i n Statement of Notes to the Consolidated Annual Accounts f o r Sun Publishing Company Ltd., 1953' "3. k% F i r s t Mortgage s e r i a l bonds, repayable i n equal annual instalments of $60,000 each to September 1, 1963: August 31 195^ 1952 Or i g i n a l issue $900,000.00 $900,000.00 Less Repaid 2^ -0,000.00 180,000.00 $660,000.00 $720,000.00 Less -Instalment repayable September 1 shown as current l i a b i l i t y 60,000.00 60,000.00 $600,000.00 $660,000.00" 21h Note No. 60 Same Statement of Notes as Note 59 (above): August 31  1953 1952 "h. k 1/2% Twenty Year Sink-ing Fund debentures, repayable November 1, 1969 O r i g i n a l issue $l+50,000.00 $1*50,000.00 Less - Redeemed 67,500.00 5^,000.00 $382,500.00 $*f05,000.00 Less - Sinking Fund Payment due November 1, represented i n 1953 by the par value of debentures purchased and held f o r presenta-t i o n to trustee 22,500.00 22,500.00 $360,000.00 $^ 82,500.00" 

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