Significance of Company Annual Report

In this article we will discuss about the significance of company annual report.

Company Annual Report has become a significant medium of corporate reporting today, although information about a company’s affairs can be communicated through other media also, e.g., prospectus, financial press release, interim report, and personal contact with company officials. Prospectuses are made available to expected security buyers and interim reports are sent to shareholders.

Besides, external parties establish personal contact with company officials through private meetings, direct correspondence with the company, listening to speeches made by company officials at stock exchanges and attendance at annual meetings. In addition, newspapers, business and industry magazines, investment advisory services and government statistics also provide information about a company.

Any of the above media can form the basis of corporate reporting by a company to the external parties. Despite the existence of different sources of information, the annual report is regarded as the most important source of information about a company’s affairs. It is really directed to the community at large, to whomsoever it may have been formally addressed.

All groups have access to it; their attitudes may be influenced by it. Its importance looms large not only in company-shareholder relations but also in company-society relations. Lee and Tweedie have found that annual financial report is considered to be the most important of the sources of information.

There are important reasons why a company annual report is regarded a valuable source of information about company’s affairs.

Firstly, annual report is relatively more and easily accessible than any other source of information.

Secondly, annual report contains audited information which creates confidence among the public.

Thirdly, annual report includes besides financial statements, some more detailed information such as historical summary, statistical data, important business results, company’s plans and policies which are not available in other sources of information.

Fourthly, representing the most commonly available source of information on past performance, annual report and statements therein are used by both amateur and professional investors to predict company’s future performance, thereby providing a base for estimating future share prices and the related cash flows to the investors.

Therefore, there is need to make published corporate annual reports more informative so that investors and other users may not have to go to other sources for the information needed by them. The Corporate Report (UK) states that annual financial reports should seek to satisfy, as far as possible, the informational needs of users, and, they should be useful.

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