Annual Report: Basic Understanding & Commonly Asked Questions ( Part 1)

(1)  What is An Annual Report?

An Annual Report :

• is a document produced annually by companies designed to show a true and fair view of the company’s annual performance,

• it comprises the audited financial statements prepared in accordance with company law and other regulatory requirements, and also containing other non-financial information.

• In UK and many other countries, the respective Companies Act requires companies to publish their annual report and accounts. Normally, in the Companies Act are dictated that:

·      Directors have stewardship of limited companies and

·      Directors are required to publish accounts which show a true and fair view of the company’s financial position.

(2) What are the Information included in The Annual Reports and Accounts?

Information in terms of financial and non-financial reported in company annual reports and accounts includes:

• Chairman’s statement
• Chief executive’s statement
• Financial review
• Accounting policies
• Financial highlights
• Financial statements (Balance Sheet, Income Statement, Cash flow Statement)
• Notes on the accounts
• Environmental report
• Directors’ report
• Corporate governance report
• Report of the auditors

(3) Who are the Stakeholders of The Annual Report?

Stakeholders includes the following:

• Shareholders (the owners of the business);
• Potential shareholders;
• Managers and employees;
• Creditors and potential creditors;
• Suppliers especially if the supply goods on credit;
• Employees and their trade unions and
• The government for tax purposes.

(4) What Are The Functions of The Annual Report?

Functions of the annual report:

·     The stewardship and accountability function;

·      Reporting to shareholders;

·      The decision making function;

·      To provide information about performance and changes in the financial position of an enterprise that is useful to a wide range of users in making economic decisions;

·      Providing users, especially shareholders with financial information so that they can make decisions such as buying or selling shares;

·      The public relations function
(The annual report is an opportunity to publicise the corporate image)

(5) Are there any Rule governing the Content of The Annual Report?

The rules governing the content of the annual report are derived from:

• Statute law – the Companies Act
• Accounting standards
• Stock Exchange rules
• Codes of best practice in corporate governance.