/sec-footnotes-analysis

name: sec-footnotes-analysis
description: Analyze footnotes and accounting policies from SEC filings using Octagon MCP. Use when researching revenue recognition policies, critical estimates, lease obligations, pension assumptions, stock compensation, contingencies, and new accounting pronouncements.

SEC Footnotes Analysis

Analyze footnotes and accounting policies from SEC filings for public companies using the Octagon MCP server.

Prerequisites

Ensure Octagon MCP is configured in your AI agent (Cursor, Claude Desktop, Windsurf, etc.). See [references/mcp-setup.md](references/mcp-setup.md) for installation instructions.

Workflow

1. Identify Analysis Parameters

Determine the following before querying:

• **Ticker**: Stock symbol (e.g., AAPL, MSFT, GOOGL)
• **Filing Type** (optional): 10-K (annual) or 10-Q (quarterly)
• **Focus Area** (optional): Specific footnote topics of interest

2. Execute Query via Octagon MCP

Use the `octagon-agent` tool with a natural language prompt:

Analyze the footnotes and accounting policies from <TICKER>'s latest quarterly filing.

**MCP Call Format:**

{
  "server": "octagon-mcp",
  "toolName": "octagon-agent",
  "arguments": {
    "prompt": "Analyze the footnotes and accounting policies from NVDA's latest quarterly filing."
  }
}

3. Expected Output

The agent returns structured footnote analysis including:

**Accounting Consistency:**

• No material changes to significant accounting policies since annual report

**Fiscal Year Structure:**

• 52-week fiscal year ending last Sunday in January
• Q3 is a 13-week quarter

**Consolidation Principles:**

• Includes wholly owned subsidiaries
• Intercompany balances eliminated

**Estimates and Assumptions:**

• Management estimates that could differ from actual results

**New Accounting Pronouncements:**

• No recent adoptions materially impacting statements

**Data Sources**: octagon-sec-agent

4. Interpret Results

See [references/interpreting-results.md](references/interpreting-results.md) for guidance on:

• Understanding key footnote disclosures
• Evaluating accounting policy changes
• Assessing critical estimates
• Identifying hidden risks

Example Queries

**Full Footnote Analysis:**

Analyze the footnotes and accounting policies from NVDA's latest quarterly filing.

**Revenue Recognition:**

Extract the revenue recognition policies and performance obligations from MSFT's latest 10-K footnotes.

**Lease Obligations:**

Analyze the lease footnotes and operating lease obligations from AMZN's latest 10-K.

**Debt Details:**

Extract debt maturity schedule and terms from AAPL's footnotes in the latest 10-K.

**Stock Compensation:**

Analyze the stock-based compensation footnotes for GOOGL including vesting schedules and expense.

**Contingencies:**

Extract litigation and contingency disclosures from META's latest 10-K footnotes.

Key Footnote Categories

Significant Accounting Policies (Note 1/2)

| Policy | What It Covers | |--------|----------------| | Revenue Recognition | When and how revenue is recognized | | Consolidation | Subsidiaries, VIEs, eliminations | | Cash Equivalents | Definition, components | | Inventory | Valuation method (FIFO, LIFO, avg) | | Property & Equipment | Depreciation methods, useful lives | | Intangibles | Amortization, impairment testing | | Leases | Classification, measurement | | Income Taxes | Deferred taxes, uncertain positions |

Revenue Recognition

| Element | Disclosure | |---------|------------| | Performance Obligations | Distinct goods/services | | Transaction Price | Allocation methodology | | Timing | Point in time vs. over time | | Contract Assets/Liabilities | Deferred revenue, unbilled | | Disaggregation | Revenue by type, geography |

Fair Value Measurements

| Level | Description | |-------|-------------| | Level 1 | Quoted prices in active markets | | Level 2 | Observable inputs other than Level 1 | | Level 3 | Unobservable inputs |

Debt and Financing

| Disclosure | Content | |------------|---------| | Terms | Interest rates, covenants | | Maturities | Repayment schedule | | Fair Value | Carrying vs. market value | | Credit Facilities | Availability, usage |

Leases

| Element | Disclosure | |---------|------------| | Classification | Operating vs. finance | | ROU Assets | Right-of-use asset values | | Lease Liabilities | Present value of payments | | Maturity Schedule | Future payment obligations | | Expense | Lease cost breakdown |

Commitments and Contingencies

| Type | Disclosure | |------|------------| | Legal | Litigation status, reserves | | Purchase | Contractual obligations | | Guarantees | Indemnifications, warranties | | Environmental | Remediation, compliance |

Stock Compensation

| Element | Disclosure | |---------|------------| | Plan Description | Types of awards | | Expense | Period cost recognized | | Valuation | Assumptions (volatility, term) | | Unvested Awards | Outstanding, expected vesting |

Critical Accounting Estimates

High Judgment Areas

| Estimate | Risk Factors | |----------|--------------| | Goodwill | Impairment testing assumptions | | Revenue | Variable consideration, returns | | Allowances | Bad debt, inventory obsolescence | | Taxes | Uncertain positions, valuation allowance | | Contingencies | Litigation outcomes, timing | | Pensions | Discount rate, return assumptions |

Red Flags in Estimates

1. **Aggressive assumptions** - Below-market discount rates 2. **Inconsistent changes** - Estimate revisions without explanation 3. **Concentrated judgment** - Single estimate driving results 4. **Lack of disclosure** - Vague sensitivity analysis 5. **Trend divergence** - Estimates moving opposite to peers

New Accounting Standards

Recently Adopted

Track impact of:

• Revenue recognition (ASC 606)
• Leases (ASC 842)
• Credit losses (ASC 326)
• Income taxes (various)

Pending Adoption