Starting with your Annual Report is actually very easy. When you think about it, there’s not much new you have to figure out or come up with. You have prepared the main financial statements anyhow after the year-end and now all you have to do is just add that extra bit of text really. And even this text is either similar to prior period or just reflecting on the numbers presented, i.e. you don’t really have to invent something new or make it a bestseller for that matter. What you have to do, is make sure it’s easy to read and understandable, consistent and sufficient.
When we talk about “understandable”, what we mean is that the context is readable and informative to people with sufficient reasonable knowledge of about accounting and the industry. It means that you wouldn’t have to explain and define things that are general knowledge like the meaning of “accounts receivable” for an example. However, what someone would expect is that you explain any terms you use within your company and that are not general knowledge (i.e. abbreviations).
A consistent Annual Report is something that is from the very beginning until the very end of the document using same terms, forms (tables, numbers), font of the text and isn’t contradictive in any of its sections. An Annual Report should be consistent in terms of presentation, but also be consistent with prior year figures and the presentation of them. If communication expenses like phone charges and Internet charges were disclosed under “communication charges” on last year’s income statement, they should be disclosed under the same group this year as well. However, if you do decide in favor of regrouping some expenses for an example, last year’s figures should be regrouped similarly. It is consistency that gives the comparability and it is figures being comparable that gives the users required information.
Sufficiency is measured on the level of the reader of the report. Are they going to get enough information about the event or transaction from your report? It’s hard to measure and it’s dependable on the event itself, the reader and what’s the reason behind the reader using the information. What you as the preparer should is imagine yourself into the shoes of the reader and evaluate whether the information disclosed is sufficient. Is the level of detail about the transaction sufficient to make decisions? Yes, it’s not easy and you may be very biased. Then again you can always revisit the disclosure after it’s done and make any adjustments after some time has elapsed. There’s normally no need to rush with it.
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