January 18, 2022


Accounting + Finance Blog

Business term: Annual report


A complete set of report provided yearly by a company and other business organizations are what is mostly referred to as an annual report. The various financial statements already explained formed part of an annual report. There are other kinds of reports prepared by a firm, mostly for either management use or a requirement by regulators in which the company is associated. Another name for this is a financial report. However, the focus is on the annual report.

Definition of an annual report

The annual report is a yearly summary of the financial and nonfinancial events that take place in an organization.

It can also be defined as a report prepared by top management of a business to disclose all (mostly financial) activities and events that took place in a year.

What you need to know

An annual report shows a summary of events that took place within a financial year. This summary includes the yearly revenue, income, assets, and liabilities.

The annual report contains a complete set of financial statements. Income statement, statement of financial position, statement of changes in equity and statement of cash flow.

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It also contains other types of reports which are discussed here. This report includes a statement of accounting policies, notes to the account, chairman report the board of directors report, social responsibility reports and environmental reports for certain companies that require such additional disclosures.

An annual report, as the name implies, is prepared only one time in a year. Some reports are prepared every three months or half a year. Such reports are not annual reports. But are quarterly and half-yearly respectively.

It reveals both the financial and nonfinancial aspects of a business An external audit report is an example of nonfinancial reports.

Importance of an annual report

The importance of an annual report for a company cannot be underemphasized. Moreover, small businesses should never underlook the preparation and presentation of an annual report or a set of financial statements. Here are some reasons why it is so.

1. It reveals the business’s financial performance and position: The annual report reveals the firm’s financial performance and position for the year under review.

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A business owner has invested in the business. Therefore, he or she cannot rely on the fact that there are countless sales. You need to know the number of sales, revenue earned, the cost of making those sales and every other thing money is spent on. The annual report tells all and more.

2. It can be used to borrow loans from banks and big creditors: Although fintech is changing the way funds are sourced in Africa at large and Nigeria in particular, lending from banks and big creditors requires that the business present an annual report or financial statement or something in between.

For example, banks may require a cash flow statement as a requirement for a loan. Development banks, such as the Bank of Industry (BOI) may require a projected financial statement if the business has not commenced trading or an annual report for an ongoing firm.

3. It may be required by a venture capital firm: A venture capital firm provides investments to young companies that are yet to make profits funds needed for the startup to scale and grow. This capitalist may require a top-notch financial statement or an annual report before such seed fundings are given to the company.

4. Other interested investors: An individual may be interested in investing in your firm. In such a case, the investor may need an annual report to understand the business it intends to put in his investment.

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5. As a requirement of the law: In the company law of every country, it is a requirement that all registered businesses must submit an annual report to the registrar of companies. Also, listed companies are required to submit such a report to the relevant stock exchange. Companies in financial institutions expect such financial report to the central bank of that country.

To conclude, an annual report is an integral part of every business. A company that fails to provide such summaries may face the law.