octagonai 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