What is company’s Annual Report – Relevance and Use

To a layman annual report is a report that is prepared every year. But, they do not know how annual reporting started and what this annual report contains. In this article you will know what an annual report contains and history of it.

After the crash of stock market in 1929, regulatory have made it mandatory to become annual report as a part of the corporate financial reporting. Annual Report published by a company is a comprehensive report prepared for the stakeholders to update them on the past performances and future prospects of the company.

Annual Report contains an outlook of the industry and company, financial statements of the current year with comparison to past years, directors report to shareholders, auditors report and various report based on the statutory compliance of the country where the company is registered. 

History of Annual ReportAnnual report is a report which is prepared at the year end closing by finance team in consultation with the management of the company and prepared after the audit by an independent auditor is done.

Based on the legal requirements, the company has to file annual report with various governments, security exchange board and stock exchanges where the company is listed. In USA the financial statements are to be complied with the IFRS and/or domestic US GAAP.

There is also legislation like SOX compliance which needs to be complied with. A detailed version of the annual report in the specified format has to be filled with the U.S. Securities and Exchange Commission.

For shareholders, equity research and for an educated investor, company’s annual reports are the most important research tool available. It updates them on the past performance and company’s outlook for future based on which these investors decide whether it will be a good decision to stay invested or its time to exit.

Annual report provides following things

  1. President’s or Chief Executive Officer’s letter to shareholders.
  2. Highlights of the financial performance of the company.
  3. Financial Statements prepared by the Management.
  4. A description of the accounting policies used in preparation of financial statements.
  5. Managements view on internal control.
  6. Auditors report.
  7. Directors letter to the shareholders of the company
  8. Other information like Past Events, Social Activities carried on the company, Industry Outlook, global presence and company’s future prospects, company’s top executives, directors and managers.

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