An annual report is a document that shows the financial progress of a company. Irrespective of the type and size of the business, every publicly traded company requires it to be prepared on an annual basis. Many people are not aware of the step by step procedure that is required to make an annual report. Gaining a good knowledge about the composition and structure of an annual report would help you forming one, in a quick and effective way.
Why is an annual report formed?
An annual report of a company is a summary document that is generated at the end of the year. It summarizes the financial status of the company. People, who own a private company, need not prepare an annual report.
This report has to be prepared by only those who publicly trade their business. This is one of the requirements specified by the “U.S. SEC (Securities and Exchange Commission) by such companies.
The basic components of an Annual Report
Though the structure of an annual report differs from company to company, there are some fixed key elements that are made mandatory by SEC to be present in an annual report. These elements include a report from company’s auditor, management discussion, financial statements, and other non-essential financial data.
Steps to form an annual report
Prepare financial statements
Financial statements form the backbone of an annual report. These statements showcase the latest financial history of the company. There are mainly 3 types of financial statements that are needed by the SEC such as the statement of cash flows, the statement of earnings, and the statement of the financial position of the company.
Write a management discussion
Along with the preparation of financial statements, there is also a need of management discussion to be done. This discussion should address the existing capability of your company to fund existing operations, interpret, and analyze the operating performance of a company.
Review of financial report by an independent firm of certified public accountants
You need to get your financial report attested by a competent auditor/firm of auditors. They should clearly mention in writing that the financial reports are reasonable and complete. Also, the attestation proves that the reports are in full compliance with currently accepted accounting principles.
Provide longer-term financial data
This section of an annual report has to be prepared to provide the financial outcome of the company over the last 5 years for comparison. Some of the financial data that can be listed in it are sales, net profit, gross profit, dividends per share, earnings per share, market price per share, the number of outstanding shares, and return on equity.
If you own a company, then it is indispensable to learn how to make an annual report. In cases when you lack the time or necessary skills, online accountancy firms come as a help to prepare it in an effective way.
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