Annual Report amd Its Components
Financial Accounting I
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An annual report is a comprehensive report on a company’s activities throughout the preceding year. Annual reports are intended to give shareholders and other interested people information about the company’s activities and financial performance.
The annual report is a financial document published by most private and public companies to summarize the major transactions of the year. The report usually begins with a letter from the Chairman of the Board and/or the Chief Executive Officer. It also includes the balance sheet, income statement and the cash flow statement as well as a discussion of company affairs and notes to the financial statements.
The joint stock companies publicly owned and listed on a stock exchange are required to prepare and publish an annual report for its shareholders. In Nepal, the privately owned companies are also required by the Companies Act, 2053 BS to prepare an annual report and submit it to the Office of the Registrar of Companies.
Components of annual report:
The financial statements consist of four statements prepared by the companies as a form of communication with its shareholders and other user groups. They include income statement, the balance sheet, statement of cash flows, and statement of changes in stockholder’s equity. The information provided in the financial statements is the responsibility of the management and subject to verification as part of the external audit.
This report is an address by the Chairperson of the company’s Board of Directors to its shareholders at the Annual General Meeting (AGM). It comprises the summary of the results of financial affairs, composition of the BOD and discussion about the external environment, especially the economic and financial situation of the country and place of operation of the business. The chairperson might take this opportunity to thank and acknowledge the support and co-operation of the company’s BOD, shareholders and staff and employees.
Management Discussion and Analysis:
The management team discusses the financial statements and provides vital explanations for the amounts reported in the financial statements. Some companies report this section as financial review. The section is directed at not only simplifying the information contained in the financial statement and any back-up information requiring clarification but also providing crucial information about the company’s business plan or strategy.
Management’s responsibility for financial reporting:
It is a written statement in the annual report indicating the responsibility of management for the financial statements.
Notes to Financial Statements:
The notes to financial statements provide crucial information regarding the accounting policies and procedures adopted, the basis of taxation, the employee benefit schemes, the commitments and contingencies, the inventories, the account receivables, account payables and other details of items clubbed together to make the financial statements brief.
Another regular feature in any annual report is the summary of financial information, especially of the revenue, net income, and total assets. Many reports call it financial highlights. This section is primarily a pictorial representation using colourful pie charts, bar diagrams, or graphical curves.
Report of the Independent Auditor:
Before the annual report is presented to the company’s shareholders at the AGM and submitted to the concerned government office, the books of accounts and the financial statements of the company are subject to an external audit from an independent auditor. After such an audit, the auditor issues a report addressing to the company’s shareholders.(According to accounting standard)