Important Parts of an Annual Report

Annual reports are prepared by the management every year for their stakeholders. It provide lots of information starting from financial viability to company’s future visions or goal.

We have listed four important parts of an annual report that one should look in to have a better view of company’s financial condition;

  • Auditors report to shareholders
  • Financial statements i.e. balance sheet, Income statement and statement of cash flow
  • Notes to the financial statement
  • Management’s discussion and analysis

Auditor’s report is the first thing one must see before getting into the financial statements. In audit report section one should note down opinions and reservations of the auditor on company’s financial statements. The auditor section of annual report consists of three parts:

  1. Introduction: In this paragraph auditor use to mention the time period of report, responsibility of financial statement preparation,
  2. Scope paragraph: this section describes how they have carried out audit and the accounting standards followed. Auditors also mention whether the financial statements presented to shareholders has any material misstatements or not.
  3. Opinion: Auditor’s opinion on the financial statements states clearly if he has some qualification to make in the report.

Most Important things of an Annual ReportAs per the security exchange board of India and other security exchange board, there are certain things mandatory to cover by management in “Management’s Discussion and Analysis” part of an annual report.

  1. Revenue Recognition: it explained the method of recognizing revenue into the financial statements.
  2. Whether a company is shutting down a factory, disbanding any major division and other expenditure related to restructuring of a company.
  3. If the company has a pension plant then the asset it held under this plan and the expenses the company anticipates in paying out when employees retire.
  4. Details of the stock based compensation to its executives
  5. Allowance for Doubtful customers.

In this section management also discuss about the key financial achievements in comparison to previous period.

If the auditor of a company qualify his audit report then management in it’s “management’s discussion and analysis” section discuss on that issues. Similarly deviation from accounting policies also been discussed in it.

Editorial Staff at Yourfinancebook is a team of finance professionals. The team has more than a decade experience in taxation and personal finance.