Annual Report Essay

“Companies’ Annual Reports have become increasingly complex over the years, sacrificing understandability for complexity”.

An annual report is a detailed report for shareholders and other business partners on a company’s activities throughout the year. It is a legal requirement from the Companies Act 1985/9 that requires companies to publish their annual report and accounts. Its purpose is to present a true and fair view of the company’s annual performance and provide financial statements that are useful to existing and potential investors, shareholders, lenders and other creditors. Annual reports consist of many financial statements, which include the income statement, the balance sheet, the statement of cash flows and footnotes that

In order for the financial information to be useful the financial statements needs to be relevant and be a faithful representation. This means that the financial accounts should provide complete and relevant information to users, which is free from error as accurately as possible and is not in any way biased, slanted or emphasized. There are four enhancing characteristics, which improves the usefulness of financial information, which are Comparability, Verifiability, Timeliness and understandability. As there are many characteristics to satisfy in order to meet the demands of the users, it becomes useless clutter, which obscures important information and gives an unclear understanding of the issues a company actually faces. The question then arises as to whether these characteristics are right, as relevant information is becoming more difficult for users to analyse a company’s progress. Annual reports are becoming increasingly complex as they strive to keep updated with the continually changing regulations. It is then stated in a report by the financial reporting council that ‘Regulators should limit constant change by intervening only when an area is high-risk and change will bring obvious benefit’ (Financial Reporting Council, 2009). However this doesn’t often occur which means annual reports no longer reflect the reality of the

It is therefore too difficult for one document meet the number of different demands. An article in the financial times describes annual reports as becoming ‘part marketing brochure, part shareholder communication, (and) part chairman’s ego-trip’ (Bruce, 2008). Although many of the users can be identified, the question will still arise for companies to identify the users in which they produce the annual reports for. However, information cannot be useful for everyone, as separate people will see the financial statements differently, as they use it for various reasons. A solution then could be to accept the current affairs and attempt to change it or to break up the report. However the an article from the financial report identifies that splitting the annual report would ‘create huge legal and regulatory problems’ (Bruce,