“Offsetting” means having for an example a receivable balance and then decreasing it with a liability to the same party. In net effect it means you’re having fewer receivables and liabilities on the balance sheet. Obviously the parties need to be the same to offset the balances and mind you, it works the same with liabilities being offset with receivables and expenses with income and so on.   Continue reading →

Various people – your employees, your suppliers, customers and investors, use your financial statements. They all have different expectations when it comes to the level of information given and details it’s presented in.  Continue reading →

Each material class of similar and dissimilar item should be presented separately in the financial statements. There’s no other option when it comes to material items.  Continue reading →

In whichever accounting area you’re making significant assumptions or estimations in, you ought to disclose them. Assumptions and estimations are in essence subjective so disclosing them means that the readers of the report know exactly what the related numbers are based upon. Otherwise it would just be a number from the sky for them.  Continue reading →

In almost every accounting framework there is in the world there are areas where company’s management has the right to choose between methods and approaches. Whether they’re important to the company or not, the options are there.  Continue reading →

One thing is the purpose of the report and how to reach this goal, but what does the report itself consist of and how it’s built up is another story. Well, it does help to keep the report structured so it will help you on reaching the end objective of the Annual Report.

First things first the Annual Report kicks of with the financial position statement, which is the balance sheet. It tells the users where exactly the company is with its operations, assets owned and liabilities taken. Then to follow is the results for the reporting year – income and expenses – presented on the income statement.  An added statement coming then (“added” in the sense that it’s prepared just for the report and not kept separately during the year) is the statement of cash flows that represents the cash inflows and outflows, which occurred over the reporting year. It really gives the users an idea how your company is using and generating the most liquid resource of them all, the cash. Another added statement is the statement of changes in owner’s equity that presents to users the usage of given funds.

With this the statements are presented, but bear in mind that there are notes to follow. Notes to the statements we just named, but also about the significant accounting policies used in compiling the statements themselves. Pretty much how the notes are built up is as follows:

–               The accounting principles or the framework if you may that was used to compile and present the statements;

–               Notes to the statements themselves in the order the statements are presented (i.e. if you start of with a balance sheet, your first note is about the first significant line item on the balance sheet).

Remember, as we mentioned, the Annual Report should be as structured as possible presenting all required components in manner which they are easily follow able and readable.

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.