Emphasizing the Footnotes in Corporate Annual Reports


All publicly held companies that are registered on national stock exchanges in the United States must file various financial forms with the Securities and Exchange Commission (SEC). Form 10-K, the annual report, is one of the most comprehensive of these filings. By law, it must disclose any information that may "materially affect" the value of the firm.

Naturally enough, companies like to emphasize good news rather than bad news so references to potential problems are often buried in the footnotes of the report. This allows the company to follow the letter of the law with respect to reporting requirements without drawing attention to issues that may end up causing difficulties in the future.

The SEC is aware of this problem, and in Regulation C 230.420 mandates that in printed statements footnotes have to be "at least as large and as legible as 8-point modern type". Nevertheless, footnotes are easy to overlook, particularly by naive investors.

The SEC makes machine-readable copies of these forms available to investors at EDGAR. Many other online providers offer additional services related to EDGAR. These filings are in a monospace font with XML-like markup that allows them to be manipulated by a computer.

We have developed a simple script, footprint, that will take the electronic filings at EDGAR and extract the footnotes. This makes it easy for an investor to inspect the information that some companies might prefer go unnoticed.

Some sample Enron 10-Ks:
Further Reading
Getting FootPrint

    Download a Python script that implements FootPrint
Responsible Parties

This hack was developed by Hal Varian and Marti Hearst, who are faculty members at the School of Information Management and Systems at the University of California at Berkeley. March, 2002