annual report
What is the annual report?
An annual report is a document published by the company for its various internal and external stakeholders to describe the company’s performance, financial information and disclosures relating to its operations. These reports have become legal and regulatory requirements over the years. American companies have been commissioned to publish such reports by the Securities and Exchange Commission (SEC) since the early 1930s.
Format of the annual report
Usually begins with the director's message to shareholders. This message is intended to inform them about the main performance points of the current year. It also recognizes the growth prospects relating to its industrial landscape to draw the attention of shareholders mainly to the potential for the excellence of the company. These reports also take into account business activity and legal aspects. The MDandA section focuses on management feedback on the company. Next comes the most important section: balances and associated notes. Financial statements provide financial details for the current year and the past year; this facilitates year-to-year comparisons for a shareholder. The notes to the financial statements describe the technical anomalies and the assumptions used in preparing the financial statements. The following sections of this accounting report present any changes made to accounting policies, financial reports, investment plans and other information relevant to shareholders.
Advantages
Annual reports are intended to provide information, and disclosures on business prospects and financial performance, and its stakeholders, which include investors, creditors, auditors, government officials, etc. In addition, they serve employees, suppliers, customers, etc.
They are used by institutional and private investors to analyze and forecast financial statements to assess the prospects of the company.
These reports are, in essence, a standard practice for companies to report on their business performance. This standardization assists government authorities in tax and audit purposes
.
Disadvantages
Annual reports are complete but not always satisfactory in terms of completeness. They are used in conjunction with other SEC documents, corporate press releases, management memos, proxy statements, etc.
Sometimes they are released to attract investors and parts of the supply chain. Expenses and potential income are projected in such a way as to make the business attractive.
They are based on historical performance. Therefore, the estimate of future performance is not always the best measured.
Important points to note
The annual reports contain financial information
of the last years. However, these financial figures are subject to change in the future.Changes in accounting methods can give rise to both prospective and retrospective applications. Users should take this into account and perform their analysis accordingly.
In addition to these reports, companies also publish
quarterly reports. It is recommended to refer to both types of reports to gather relevant information.
When using these reports to analyze and forecast financial statements, it is recommended that you use data from the most recent years. For example, data for the year 2016 should be taken from the 2016 annual report17; this is because companies continue to review data with changes in accounting policies regarding the retrospective approach.
Conclusion
An annual report is useful for stakeholders to understand the strengths and weaknesses of the business. This document is prepared for different purposes and is intended for different users. When preparing this document, companies should follow accounting principles and represent the company as clearly as possible to their investors and creditors.
Team of independent auditors
verifies this report and credibility depends on the accuracy of the report. These reports are published and disseminated online, as well as made available to interested parties in hard copy.
