An annual report is a detailed report showing how a company has performed throughout the preceding year. It is intended to provide information about the company’s business activities and financial performance to concerned stakeholders including shareholders, borrowers, investors or any other interested party. It may be considered as grey literature (material information or research provided by the organizations which are lying outside the company’s channel of publication). Almost every country requires companies to prepare as well as disclose annual reports with many jurisdictions requiring the report to be filed at the company’s registry. Companies listed on a stock exchange are required to publish its annual report more frequently.
Few components of Annual Report:
- Letter from the Chairman: In this part of the report, the chairman addresses how the company has performed during the year and throws light on the company’s goals and strategies for the future. A glimpse of EBIT/EBITDA, revenue, expenditure, dividend pay-out, profit/loss, balance sheet position and income statement results is present here.
- Ten-year financial summary: This section depicts the company’s financial results over the last decade.
- Management discussion and analysis (MD&A): Under this section, the management discusses the financial trends of the company over the past couple of years, particularly recent fiscal year. It gives the readers a hint that where the company stands and where is it expected to go. Details such as product launches, geographical expansion, mergers and acquisitions, regulatory approvals, demergers and organizational changes are often talked in this segment.
- General shareholders’ information and corporate governance: This segment shows the information regarding the significant shareholders along with the corporate governance actions taken by the company.
- Financial statements and schedules: This section includes the financial performance data of the company such as Profit and Loss statement, Balance Sheet, Cash flow, Other comprehensive income, etc. The financial statements are usually compiled in accordance with the IFRS and/or the domestic GAAP, as well as local legislation (e.g., the SOX in the U.S.).
- Other information such as a report on operations for manufacturing firms relevant to stakeholders may be included. In the case of a big company, the report published is usually a sleek, colourful, and high-gloss.
The Annual Report is prepared with the objective of taking economic decisions, providing financial information of the entity, and to attract new investors and make adequate disclosures to the existing ones. The purpose of the Annual Report is to provide information on the company’s fiscal year to reflect the current status of the business. It is considered the primary accountability mechanism, helping the investors to make prudent investment decisions. It also serves as a marketing tool for the organization. It provides information on the company’s mission as well as history. It also concludes the company’s achievements in the past year. It includes information on sales increases and factors related to growth in profitability and productivity building the trust in the shareholders and stakeholders.
In the United States, the companies are required to submit various forms to the U.S. Securities and Exchange Commission such as Form 10-Q for quarterly reporting, Form 10-K for annual reporting, Form 20-F to be filed by foreign private issuers who are listed on the US exchange, Form 8-K which is to be filed within four business days provides an update over previously submitted reports. Organizations in Australia are required to file the annual report to the Australian Securities Exchange (ASX), Australian Taxation Office (ATO), and/or the Australian Securities and Investments Commission (ASIC). The Accounting Standards which meet the requirements of the International Financial Reporting Standards (IFRS) are set by the Australian Accounting Standards Board (AASB).
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