Definition: A report created annually that provides an analysis and assessment of the trends of the past year.
An Annual Report often consists of:
- A description of the accounting practices seen within the report. For example, a description of the principles for determining the accounting items in both the income statement and the balance sheet.
- Information on the events that have influenced the company's accounting during the year.
- A statement from management showing a true picture of the company’s economy and development.
- Possibly an auditor's report, if applicable.
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Note: not all companies are required to prepare an annual report. It depends on the company's legal form and size.
Overview of your business economy
An annual report can help one to understand the strengths and weaknesses of a certain company's business economy, since it paints a picture of corporate earnings.
Annual reports can also be used in order to show the company’s financial situation to important users, such as creditors and other collaborators. One can also use an annual report to find out how one's enterprise economy can be improved.
Credibility in your annual report
It is very important to have an accurate and credible annual report as this is used to assess your ability to obtain credit and borrow money should you require funding. The annual report does not indicate tax considerations, however. They must instead be shown through tax accounting.