Annual report is a book prepared by the corporate of providing the every single corporate performance throughout the whole accounting year, to the shareholders. The corporate performance comprises a great variety of aspects, not only the financial statement but also some important parts in the report as well, where they hold some very significant information. However, the financial statement plays the most vital role in determining the performance of the corporate, which most of the financial users are concerned with.
As to whether the corporate is or will encounter any barriers in their future, either they can hinder the growth of the corporate; or having great potential of prospect in the future, which enable the corporate to achieve globalisation or profit maximisation, are hinted through annual report. This indicates that the annual report is capable of providing financial information to the financial users to make economic decision.
According to MASB 1, the objective of general purpose of financial statements is to provide information about the financial position, performance and cash flows of an enterprise that is useful to wide range of users in making economic decision. Financial statements also show the results of management’s stewardship of the resources entrusted to it. According to S132 (1) of the Company Act, the director is a person appointed by the shareholders in which the director acts on behalf of the shareholders to manage the company.
And this is the duty of the directors to report every single information with the greatest extent of transparency and avoid any abuse of authorities and power by the top management. Therefore, an annual report should free from any fraudulent disclosure. In the common practice today, annual report consists of the following statements as minimum disclosure. a) Corporate information – this is a statement disclosing the board of directors, the location and contact ways of the registered office, the company’s auditors, information of principal bankers, share registrar and stock exchange listing.
b) Profile of Board of Directors – this is a statement disclosing the background of the directors (non executive and non independent directors, and non executive and independent directors), qualification, experiences and splendid achievement of they attained. This statement constitutes some extent of importance as so whether they can run the business efficiently and effectively depend on their accumulated experiences, age, matching of knowledge to related field of business and etc.
The aged directors may have great experiences in handling the business and solve problem easily but they may not have the vigorously health compared to the young. In the management theory, it is believe that the aged will have higher un-avoided absenteeism. By contrasting, the young directors may have great initiative and energy to run the business but they may lack of experiences, where they might lose under the competitive market today.
c) Corporate profile and structure – this is a statement stating the background of the company, engagement of businesses, business segment structures. d) Chairman’s statement – this is a statement written on behalf on the board of directors, stating the financial review of the corporate, from which segments of the whole group contribute to the highest sales, profits, losses as well as tax concerned. Besides, this statement also comprises corporate developments, future prospects and corporate strategy for its future and etc.
, from which it is likely to hint the strengths and opportunities of the corporate in future; while giving clues on the strategy to enhance the performance of the corporate especially in the sense of profit maximisation, utilisation of resources and the target to achieve globalisation. e) Director report – this is a statement about the principal activities of the corporate, which emphasise on the financial information such as dividend, share capital, warrants and options, and the changes of accounting policies with accordance to MASB.
Besides, the directors’ interests and benefits are disclosed here as well. f) Audit committee report – this is a report done by the external auditors to voice their opinion about the company performance, especially involving the financial figures. In this report, they will state the duties and activities conducted to examine the relevance and reliability of the corporate financial statement. Finally, they will issue and authorise the report (qualified or unqualified) as to whether the financial information disclosed by the corporate represents true and fair view.
g) Statement on corporate governance – this is a statement showing the extent of transparency of information provided by the directors without concealing any important issues that the directors themselves can take advantage on the non-disclosure. The duties and responsibilities of the directors are stated as well as the directors’ remuneration policy. Besides, the directors must able to prove the independence, both the relationship with shareholders and auditors.
h) Financial statements – these statements comprise of income statement, balance sheet, statement of changes in equity, cash flow statement and notes to the financial statement. This part plays the most important role as it indicates the financial performance of the corporate in the sense of profitability, liquidity, solvency, assets utilisation, investment, capital structure and etc. This is the part that the external financial users are interested about and also the greatest room for creative accounting to involve.
i) List of properties – this is a statement describing all the properties hold by the corporate, the location, size of area, tenure and the net book value of the property. j) Proxy form – for those who may be unable to attend the AGM – a thoughtful addition. With the above-mentioned disclosures, it is capable to fulfill the requirement of KLSE and is able to be released to the shareholders. However, in today’s world, many people do not like to read annual report; even do not know what is actually an annual report as being shareholders of a particular listed company.
Some argue that the annual report is extremely detailed and complex. Some elements of the annual report are rarely read and seldom understood, especially the auditors’ report and the other statutory statement. Despite this, many shareholders appear to be aware that such boilerplate is (at least in theory) for their benefits. This lesson to be learned is that such statements can safely relegated to the margins, and that the auditors do not necessarily need an entire page of annual review allocated to the report.
As a conclusion, the shorter the document, the more likely it is to be read in full. Now, let’s determine the usefulness of financial reports. The usefulness of the annual report has been severely questioned by the proponents of market-based research. A generation of market-based researchers has argued that the annual report is not timely and does not impact upon share prices. They thus doubt its usefulness. However, market-based research has been re-appraised recently and its basic view questioned.
The PwC report support this re-appraisal by providing corroborative independent evidence that the annual report is useful. Indeed, it confirms earlier studies, mostly carried out in the 1980s that the annual report is used extensively by analysts and is considered an important source of information. Thus, PwC determine that the majority of both institutional investors (88%) and financial analysts (87%) find the annual report useful, but that only 29% of the investors and 25% of the financial analysts find it very useful. The overall judgment is therefore good, but could be even better!