sec-footnotes-analysis

Research

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.

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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 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 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

Aggressive assumptions - Below-market discount rates
Inconsistent changes - Estimate revisions without explanation
Concentrated judgment - Single estimate driving results
Lack of disclosure - Vague sensitivity analysis
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

Monitor upcoming:

Segment reporting changes
Crypto asset disclosure
Climate-related disclosures
Income tax transparency

Comparing Footnotes

Year-over-Year Changes

Change Type	Significance
New policy	Significant event or standard
Policy modification	Changed circumstances
Removed disclosure	Issue resolved or consolidated
Expanded disclosure	Increased materiality
Reduced disclosure	Decreased significance

Peer Comparison

Compare across competitors:

Revenue recognition approaches
Estimate methodologies
Disclosure quality
Policy choices

Analysis Tips

Start with Note 1: Summary of significant policies provides foundation.
Track changes: Compare footnotes year-over-year for policy shifts.
Read related party: Transactions with insiders reveal governance.
Check subsequent events: Post-period events may be material.
Cross-reference MD&A: Management discussion provides context.
Note judgmental areas: High-estimate disclosures signal risk.

Use Cases

Accounting research: Understand company's financial reporting
Risk assessment: Identify hidden liabilities and contingencies
Valuation support: Gather inputs for financial modeling
Due diligence: Comprehensive policy review
Audit analysis: Evaluate disclosure quality