Composition of the Annual Report

By definition an Annual Report is all about your company’s results, however it’s a structure that’s expected from an Annual Report and not just simple text put together. Technically an Annual Report consists as a minimum of following sections: 

  • The management report giving an overview of the highlights of the reporting period, plans and future actions, comments on financial ratios as well as summary of investments, personnel related information and details of social and environmental activities as applicable, etc.
  • Financial statements consisting of the 4 main statements – balance sheet, income statement, statement of cash flows and statement of changes in equity. Those are the four main statements that are presented for the reporting period. Everything else following is notes and detailed additional information about those very same statements. Please note that the order of them can be different based on which really describes your company better – if it’s not really an asset based business, i.e. there aren’t many fixed assets, but you sell services, it may be more presentable to have the income statement as your first statement. It’s really up to you to decide on the ordering (unless your local legislation is very strict about it).
  • An overview of the accounting principles used and applicable to the entity. Keep in mind here that you should only disclose those principles that are applicable to your company and nothing else. If you don’t own inventory, there’s no need to disclose principles about inventory accounting. However, if you rented some assets, the applicable operating or finance lease accounting measurement should be disclosed.
  • Notes to those four main statements with detailed tables more expanding line items and if need be, also explaining the contents behind a number. Notes also include additional information which doesn’t necessarily reflect on the statements themselves, i.e. interest rates, material conditions of loan or rental agreements, an overview of the composition of the share capital, etc. It’s really subject to the business, the performance of the company, the items existent etc. There isn’t a rule of thumb of what should be disclosed, but there is a general expectation that all information the public, the consumers of the report would be interested in, should be disclosed in the Annual Report.
  • A proposal on how to allocate profits or to cover for the losses dependant on which one there is as a result of the reporting period.

Whilst this list is more or less complete when it comes to compulsory components of an Annual Report (the minimum content), please bear in mind that the local legislation for you may impose more of them. Examples may be the IFRS requirements like an overview of risks and the level of the company being open to them etc.

Essentially and ideally your company’s Annual Report should give a true and fair overview of its financial year’s performance, disclose all relevant information needed to make decisions (by suppliers, investors etc.) and be easily understandable and readable. Yes, nobody will fine you for typos, but is it really you want people to see in the official summary document about your company’s performance for the reporting year? I don’t think so.