Companies conduct business operations to generate revenues and profits. However, they need finance to do so. Usually, this finance comes from equity holders and creditors. These parties provide funds that companies can use to perform various business activities. In exchange, companies repay those parties in several ways. These parties fall under the definition of a stakeholder.
On top of that, stakeholders may also include other parties. These consist of debtors, management, employees, the government, and other similar entities. These parties may be internal or external to the company. Essentially, stakeholders have an interest in the business or the company. For these parties, how a company performs and conducts its operations is critical for decision-making.
Stakeholders need information from a company on which they can base their decisions. Usually, this information comes from the financial statements. However, companies provide those statements as a part of their annual report. This report contains other necessary information as well. It is crucial to understand when it comes out and how companies distribute them. Before that, one must know what an annual report is.
What is an Annual Report?
An annual report is a written document that companies present to stakeholders. Public companies must prepare and distribute these reports regularly. However, the same criteria do not apply to other entities. Nonetheless, they may present annual reports voluntarily. These reports are crucial in providing additional details about a company and its operations. They include qualitative and quantitative information.
An annual report describes a company’s operations and financial conditions. It presents an image of that company from the management’s perspective. Usually, it includes graphics, photos, narratives, and other similar items. These items are a part of the front section of the annual report. On top of that, the annual report may also contain the financial statements to which it relates. Apart from that, the back also includes other financial and operational information.
An annual report includes a comprehensive report of a company’s activities. Usually, it presents that information for the preceding year or a defined period. Its primary purpose is to provide various users with crucial details about operations and financial activities. Apart from that, it also includes the views of management personnel. It is a critical document for investors and other stakeholders.
Overall, an annual report is a formal document that companies publish regularly. Once they publish it, companies send them to various stakeholders. Usually, the distribution criteria for annual reports differ based on several factors. However, it will always include critical parties, such as investors, government bodies, etc. The annual report can help companies attract new investors while conforming to rules and regulations.
What Does an Annual Report Include?
There are several components of the annual report that companies must include. Sometimes, companies must follow specific rules and requirements when reporting the annual report components. However, they may also consist of other areas according to their needs. Companies may alter the annual report format based on those needs as well. However, most annual reports contain similar information.
Usually, annual reports include the following areas.
- General corporate details.
- Highlights of financial and operating activities.
- Letter from the CEO and Chairman to the shareholders.
- Management discussion and analysis (MD&A).
- Narrative documents, charts and images.
- Financial statements (Balance sheet, income statement, cash flow statement, statement of changes in equity, notes to the financial statements).
- Auditor’s report.
- Summary of accounting policies and any changes to them.
- Summary of financial data.
When Do Annual Reports Come Out?
An annual report provides various benefits to several crucial stakeholders. It offers an opportunity to highlight achievements, expectations and goals. Similarly, it delivers information on its financial position and performance. Annual reports also tell various parties about plans and strategies to grow. Based on this information, stakeholders can make critical decisions.
For several reasons, knowing when annual reports come out is crucial. Some users may not be aware of when to expect these reports. Therefore, they may miss out on opportunities to benefit from the information provided. These users always wonder when annual reports come out or are available for distribution. The answer to that question lies in the name of these reports.
As the name suggests, annual reports come out annually. Companies prepare and distribute them each year. However, it does not imply that these will be available in December or January. In this context, a year refers to the financial year-end for a company. This date will differ based on various factors. Usually, the tax year-end is the same as the fiscal year. In most jurisdictions, it is around December.
However, the fiscal year-end for companies may differ in some areas. In some jurisdictions, it may also fall around March or June. Depending on that date, stakeholders can expect the annual reports to come out soon. Once the fiscal year ends, companies start working on these reports. Once they prepare and finalize it, they will release it to the public. In most cases, annual reports come out between 1-3 months after the fiscal year-end.
What is the Distribution Requirement for Annual Reports?
The annual report does not constitute a part of the internal documentation process for companies. Usually, the information provided within this report is available internally through other means. Instead, it is a way to inform stakeholders about activities. Companies must distribute their annual reports to various stakeholder classes. These fall under the distribution requirements for those reports.
The primary stakeholders to whom companies must distribute annual reports include the following parties.
Board members are one of the primary parties who require the annual reports. Usually, these members receive a copy before other people. In some cases, some board members may be an active part of the company’s operations. However, others may also come from the outside. Distributing the annual report to them is crucial.
The management and executive team
Managers usually receive the information reported in the annual reports through management reports. Some may also play an active role in preparing and compiling these reports. Nonetheless, companies distribute a company of annual reports to them. Even those involved in the process must get to check the finalized statement.
Investors and donors
Companies may have hundreds of investors or donors. Distributing the annual reports to those parties may not be possible. However, companies focus on their substantial investors and donors. These parties are the primary stakeholders who use the annual report for decision-making. Investors also need this report to understand how much returns they have received from operations.
The government will always require a copy of the annual report. Therefore, they are an essential part of the distribution requirements for annual reports. Usually, companies provide a copy of these reports to a specific body. For example, companies in the US send their annual report to the SEC and IRS. In other areas, these parties will differ. Companies must refer to their local Companies Act to understand the distribution requirements.
The above includes the primary stakeholders to whom companies provide their annual reports. However, some companies may also go beyond these. Usually, companies offer their annual reports through their websites. This way, they can provide these reports to a broad range of users and stakeholders. However, these parties may not be the focus for some companies.
An annual report is a document that companies prepare to report to shareholders. This report includes various components, although they may differ. Essentially, companies prepare and present their annual reports annually. However, the exact date may vary depending on several factors. The distribution requirement for annual reports must include substantial stakeholders.