Annual Report: Definition & Requirements to File

KEY TAKEAWAYS

• Annual reports are a summary of a corporation’s financial activities and economic health over the prior fiscal year. 
• The report must reach a large target audience of investors, clients, staff, shareholders, and governments.
• An annual report and a 10-K filing differ slightly. The 10-K filing fulfills legal requirements and focuses on data. The annual report often includes design and graphics to make it appealing.

What is an Annual Report?

An annual report is a thorough statement in regards to a publicly-traded company’s financial condition over the past fiscal year. It’s also known as a:

• Business annual report
• Statement of information 
• Yearly statement

The report shares its goals, strategies, accomplishments, and financial performance in the last fiscal year. It’s designed to appeal to large audiences of shareholders, customers, employees, and investors.

Some companies format their annual report as an effective advertising tool. But you must provide this financial information annually. You do this through the Secretary Secretary of State  and the SEC.

In this article, we’ll cover the purpose of an annual report, what’s included in it, and who it’s for.

Purpose of Annual Report

A company’s annual report is a comprehensive summation of its financial performance over the past year. It’s filed with the Securities and Exchange Commission (SEC) and made available to shareholders and the general public. The report must be filed electronically with the SEC through its EDGAR system, and will immediately become publicly available upon filing.

The annual report must include important financial statements. For example, balance sheet, income and cash flow statements, and statement of shareholder equity. These statements provide a detailed look at a company’s financial health and performance.

Additionally, the annual report must also include a discussion of the company’s business operations and prospects for the future. This section is often referred to as the “Management’s Discussion and Analysis” or MD&A.

The SEC has specific requirements for what you have to include in the annual report. Companies must also follow generally accepted accounting principles (GAAP) when preparing financial statements.

Annual reports give shareholders and the public details about a company’s financial performance.

A company’s annual report aims to accomplish several purposes: 

• Meet the regulatory requirements to maintain a corporate designation
• Attract potential investors
• Update current shareholders with key financial performance details 
• Emphasize core values and future objectives with its customers
• Confirm that financial statements were prepared in accordance with the Generally Accepted Accounting Principles (GAAP)

Since the report is used by a large number of people it has multiple purposes. The most important goal is to meet the regulatory requirements of a corporate designation. 

If a corporation fails to file an annual report, it would have that designation removed. They would also lose the tax benefits corporations enjoy. Annual reports make a company’s financial performance transparent to stakeholders, staff, government, and potential investors.

Stakeholders must have access to this financial information. This is necessary in order to make the appropriate investment decisions.

What is included in an Annual Report?

What’s in an annual report is dependent on the requirements laid out by the Secretary of State for the state they’re filing in. For many stakeholders, it’s a lot of information. As such, many companies choose to break up lengthy texts with visually appealing graphics and images. 

This isn’t the case with the SEC federal government required filings which are more focused on the data. Most annual reports contain any combination of the following sections:

• General information about the company such as the name, type of business, and the registered agent
• Highlights about operations and finances
• The CEO’s letter to shareholders
• Management’s discussion and analysis (MD&A)
• Balance sheets, income statements, and cash flow statements
• Capital investment data, anticipated revenues and expenses, and other financial details 
• Statement of the company’s core values, mission statement, and objectives
• Auditor’s report
• Accounting policies
• Summary of financial data
• Performance projections and future goals

Physical copies of annual reports are often sent to shareholders. But electronic versions of an annual report are often posted on the company’s website.

How to Write an Annual Report

Typically the company itself doesn’t take on the task of writing an annual report. This is usually outsourced to an auditing company. Many times, the only part that stays in-house is when the CEO writes a letter to the shareholders. This comes at the beginning of the report. 

Small businesses may not have the luxury of outsourcing their yearly statement. So FreshBooks has 4 Tips for Preparing Your Annual Reports to help.

Who Uses Annual Reports?

The following people use these reports:

• Shareholders
• Stakeholders
• Employees
• Potential investors
• Customers
• Other companies looking to form a partnership

Difference Between Annual Report and 10-K Filing

An annual report and a 10-K filing are very similar. Both of them report the company’s financial performance and provide a summary of the activities the company did over the last fiscal year. 

An annual report usually includes more images and graphics that make it more palatable for stakeholders. A 10-K financial filing is purely for the secretary of state and/or the SEC. So it’s just the data without the design. 

Summary

An annual report is a chance for companies to update their shareholders on the events they’ve experienced in the past year. It’s also a chance to walk them through the financial data that is key to making informed decisions with their investment.

The use of design elements helps it act as an advertising tool while also assuring current investors of the financial health of the company. It holds significance for many groups of people but it’s also legally required for a corporation to maintain its designation. 

The 10-K annual report is due from 60 to 90 days after the fiscal year end, depending on a type of filer.

Written by Sandra Habiger, CPA

Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Alongside her accounting practice, Sandra is a Money and Life Coach for women in business.

Written by Sandra Habiger, CPA

Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Alongside her accounting practice, Sandra is a Money and Life Coach for women in business.