Purpose of an Annual Report

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.