Annual Report and Accounts - Introduction

Annual report
• An annual report is a document produced annually by companies designed to portray a true and fair view of the company’s annual performance, with audited financial statements prepared in accordance with company law and other regulatory requirements, and also containing other non-financial information.
• The Companies Act 1985/9 requires companies to publish their annual report and accounts.
• It should include:
– A balance sheet
– A profit and loss account
– A cash flow statement
– A Directors Report

Stakeholders in the annual report
• Shareholders (the owners of the business).
• Potential shareholders.
• Managers and employees.
• Creditors and potential creditors.
• Suppliers – especially if the supply goods on credit.
• Employees and their trade unions.
• The government – for tax purposes.

Functions of the annual report
• The stewardship and accountability function
– Reporting to shareholders.
• The decision making function
– To provide information about performance and changes in the financial position of an enterprise that is useful to a wide range of users in making economic decisions.
– Providing users, especially shareholders with financial information so that they can make decisions such as buying or selling shares.
• The public relations function
– The annual report is an opportunity to publicise the corporate image

A true and fair view
• Directors are responsible for the preparation of the accounts which must give a true and fair view.
• A true and fair view is one where accounts reflect what has happened and do not mislead the readers.
• The accounts must be prepared in accordance with relevant accounting standards.

Information to be included
• The rules governing the content of the annual report are derived from:
• Statute law - the Companies Act
• Accounting standards
• Stock Exchange rules
• Codes of best practice in corporate governance.

Companies Act 1985/9
• Directors have stewardship of limited companies.
• Directors are required to publish accounts which show a true and fair view of the company’s financial position.
• Accounts must be sent to:
– All shareholders
– All debenture holders
– The Registrar of Companies at Companies House.
– This must be done within 10 months of the year-end for a private company and within 7 months of the year end in the case of a public company