What Is The Relevance Of The Annual Report?

Creating the annual report is always a big event in the finance department. Often it means long hours, lots of takeout meals and good times with colleagues. However, while finance professionals might find it interesting perhaps now is a good time to question its relevance in the world, we live in today.

Our stakeholders want fast, reliable, and accurate information they can trust to help them make better decisions. And it should also be forward looking. The historical numbers they know, and they are already factored into their decision-making.

So, what are all those long hours good for? 

Let us examine further the use of the annual report not least for smaller and medium sized companies. We should also consider the internal company perspective as well as the external investor/stakeholder perspective.

The annual report and its many uses

For large companies, the annual report would mostly be considered a compliance and regulatory requirement not least if it is not a listed company. The report rarely produces any new information for internal stakeholders and is considered a non-event by most stakeholders when published. Why?

They are already discussing February performance of the next year (assuming you follow a calendar year). The report might make some waves with investors in listed companies but even here they are rarely caught by surprise about historic details. Let us instead turn to SMVs and consider their use of the annual report.

For many smaller companies, the annual report might be the only time of the year that they do a real hard close. They likely have a good idea about their P&L and working capital during the year but not all other details. That already makes the annual report an important process in reviewing the performance and worth of the company.

The internal perspective

For Finance this an opportunity to scrutinize the numbers in greater details. Finance can ensure all the assessments made during the year to make up a P&L gave a correct picture of the company’s performance. Moreover, the balance sheet including provisions and tax should be assessed with a potential impact on the P&L.

It is also a good opportunity to close the year having some performance talks with department heads and management. Finally, it is the basis on which management will go to the board and evaluate the year. Was the budget met? Did management live up to its expectations? What significant assessments have been made on provisions and accruals, etc. It might be outdated information but, in some way, it is still the first time that many stakeholders in the company get a full overview of the performance for the year.

The external perspective

There are more eyes looking at your company than you realize. Public authorities, competitors, suppliers, customers, potential buyers, etc. For all non-listed companies, the only way they can get good financial information on your company is through your annual report. This needs to be submitted to the central business register and will usually be publicly available for interested parties.

This in turn forms the basis for many different activities such as credit reports that can be bought, key figures comparison to competitors, valuation by potential buyers, etc. Unless you go beyond regulatory requirements and publish your annual report and additional information yourself this is the only way these stakeholders can get access to your financials. Hence, it is in your best interest to do a proper job and create high quality financials. They will go a long way to establishing trust around your company’s activities.

Why you should go beyond the minimum requirements

At the end of the day, there is a lot of information produced in your company that will be more helpful for decision-making than the annual report though. Hence, you should carefully consider the benefits of doing more than the minimum requirement. Also, you should consider if there are ways you can optimize the process. Sure, it is cozy to have pizzas with co-workers and it might even be fun to work long hours for a shorter period. Still, why not spend your time more productively and work on a value-adding analysis or discuss with business stakeholders how to improve performance for March?

Therefore, it is recommended to review your processes and see what can be done smarter and find work processes that can be eliminated or automated. In addition, consider if there are any tools that can help you close the books and the annual report faster. The annual report is still a relevant product, but if processes in the workflow can be done smarter and faster while delivering a more accurate output – wouldn’t you prefer to do so?

If yes, then click here and download Konsolidators top 5 tips for preparing your annual report and gain valuable tips on how to save time while delivering and error free annual report at deadline.

Anders Lui-Lindberg, Partner, COO & CMO at CEO at Business Partnering Institute