Essay on Financial Statements Of A Company 's Annual Performance

Essay on Financial Statements Of A Company 's Annual Performance

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“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 accompany the financial statements. It also contains an audit report, directors report and management comments. The financial statements are influenced by many different regulations; such as the Domestic legislation, the international legislation and rules, and for some companies that are listed, the stock exchange. In an attempt to harmonise some of the rules and regulations the conceptual framework has been created in order to assist companies with broad principles in which accounting standards can be built on.
The conceptual framework underpins the principles that underlie the presentation and preparation of financial statements. The International accounting standards board (IASB) uses the conceptual framework when developing or re-evaluating the international financial reporting standards. Therefore the objective is to assist the IASB to improve financial reporting by providing them with a set of updated key principles.
One of the reasons why annual reports are said to incr...

... middle of paper ...

... of Tesco’s annual report to show how annual reports have changed over the years, it is clearly shown that annual reports have become too long and indigestible as a comparison between the years 2004 and 2014 show that the report has increased nearly three times as much, going from 56 pages in 2004 to 144 pages in 2014. The annual report has become less clear and more difficult to follow.
In conclusion companies annual reports have become increasingly complex over the years, sacrificing understandability for complexity. This is due to the regulatory requirements that have increased the number of disclosures. Annual reports include too much information, which is irrelevant for the users and becomes a report in which is satisfactory to users but not ideal for anyone. Annual reports have improved over the past years but have not gotten easier to understand.

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