The objective of an Annual Report is to give those wide ranges of users the information they require and desire from the report. It’s a lot of pressure put on the management and to a single document considering that the range of users is differencing quite considerably.

How could all this be achieved? Obviously by being understandable, putting you into the shoes of the users and by not giving out too much, just enough as is necessary. In fact the key message here is to enclose as much information as is necessary and as little as possible. It’s a fine balance that you as the preparer of the report want to keep. Your competitors may be eager to know your internal information, but you really don’t want to give them that.

What you’re required to show and explain are your position of assets, liabilities and equity, your income and expenses. By showing we mean the numbers and by explaining we mean the notes with added information that helps readers to understand the content behind the number. Normally this “explanation” is really just a detailed break down into line items, i.e. there are operating expenses on your income statement and what you do in notes is show what those operating expenses comprise of (like transportation, rent and so on).

At the end of the day what you must ensure is that every significant figure in your report is clearly commented with additional information and if applicable, indicated with cross-references.

An Annual Report is usually required by your local legislation but have you ever stopped and wondered why it’s asked? Why put an extra obligation to a company’s management to prepare a report that’s hardly used by the management itself? Truth be told, there are management who find it their pride and joy to see a fully prepared Annual Report as it’s the summary of how they did during the last financial year just as well as how the company did.

But that aside now, an Annual Report is required due to various reasons:

–               It provides information about the financial position of the company – how liquid it is, what financing it may need and so on;

–               Since the Annual Report is all about how the reporting year went, one also gets an overview of the financial performance of a company with the Annual Report;

–               It also shows the results of management’s stewardship of the resources entrusted to them, shows how well or how bad they did with the company.

To summarize those reasons, what they serve is the users of the report – usually a wide range with different expectations to the report – who as it happens, read the report for a reason of their own. It’s either to make economic decisions, to get some form of inside information about the industry and so on. It’s also the government who’s interested in statistical information apparent from Annual Reports – number of employees, industry information etc. An Annual Report is prepared for various reasons as you can see.