Annual Reports Complexity - Essay Example

affiliation Annual Reports Complexity by 03-28 Lecturer’s Number Annual Reports Complexity Companies’ annual reports give a detailed information about the past, present and future of the company. It helps both shareholders and customers to trace the progress of business, losses and achievements, risks and perspectives, mistakes and lessons learnt. Report gives an opportunity to weigh up all the work being done throughout the year and find ways to make the company’s productivity and profitability grow. The main purpose of the annual report is in making shareholders and stakeholders feel comfortable and confident about their investments. An annual report typically includes a balance sheet – key numbers giving the information in figures, an independent auditor’s report, a statement of company’s income and a report on operations. Corporations are free to expand this basic information by including reports made by senior executives, such as the chief executive officer or chief financial officer. The report might also contain the list of board members and the market circumstances and their effect on the achievements of the company. The letter to shareholders is a usual way to start the report, giving the outlook of the company, its missions and future plans, forecasts and perspective. More than that a letter outlines the most significant achievements such as success within market, launch of new services or products, finding new customers, it also points out factors in business environment that are sure to affect the result. The annual report traces all the steps being made in order to increase company’s income providing information on production levels, productivity initiatives, investment programs, research and development programs. The main aim of an annual report is to draw a portrait of a well-managed organization making confident steps towards success and stability. An annual report provides an account of financial performance of a company over the previous accounting period and typically it includes a balance sheet, income, cash flow and equity statements. An important indicator of the main achievements and future prospects is marketing strategy. Participation in sectors of market that are expanding highlights future opportunities of growth and prosperity. It is hard to overestimate a record of customer wins as they are an evidence of growth while firm customer relations and small account losses are a sign of stability. Communications technologies have made it possible for small businesses to create an online version of their annual reports in order to have the opportunity to add valuable information about the company in the future and build a bridge to customers, making information less complex to read and understand. USING OF THE MODERN TECHNOLOGIES For instance the designers can upload a video or audio record of chief executive pointing out the highlights of the annual report or add links to more detailed information on accounts. Asking an investor what makes a good annual report is like asking somebody what makes a good pizza. Some enjoy the simplicity of a thin, crispy base topped with only tomato sauce and cheese. Others prefer thick-crusted varieties capable of supporting a shopping-cart load of toppings. (Ketchen, 2011).  Here comes the question: what is a secret ingredient of a good annual report? Progress has played a major role in making our lives much more convenient and at the same time quite complicated. It is difficult to point out the quintessence out from huge amounts of information. Thus, the answer is on the surface – to make things simple. Recently the demand of disclosure has grown dramatically making annual reports longer and more complex, containing huge amounts of records on each aspect of business. Unfortunately, many reports tend to include low-quality information, disconnected and misleading content and all this is sure to drag away attention from key messages and affect the reputation of the company. The communication should be clear and transparent, providing brief and precise information in order to set up a trustful dialogue between the stakeholders. Plain language is the key to minimize the efforts to understand relevant information and increase its understandability and usefulness.  IFRS Framework is a tool to explain who needs the information about financial situation of the company and the reason why investors, shareholders and other parties need it. In fact, IFRS is a guidance that describes the basic principles for financial information to be prepared and presented. Thus, the information in annual report is sure to meet a certain number of requirements. These are the fundamentals that any self-respected entity should stick to: relevance, faithful representation, comparability, verifiability, timeliness on one hand and clarity on the other are the characteristics any report must have to increase its usefulness. In recent years the annual reports complexity has become one of the most important issues as financial instruments themselves are very complex to report on. The point is that the term ‘financial instrument’ contains a number of instruments. Some of them are very hard to understand even when full and detailed information about it is provided. Another cause worth mentioning is that some standards for financial instruments might contain many alternatives. Also they can have exceptions or bright lines which are sure to obscure the key messages. To sum it up, today’s problems emerge from: (a) numerous ways to measure financial instruments; (b) hedge accounting; (c) the size of standards and the definition of financial instrument; (e) disclosure and presentation; (f) others VITROLIFE ANNUAL REPORT As an example of annual report I picked a middle-sized company and added a sheet with key numbers including information on its operations, sales, records on employees etc. in order to trace the achievements through the year and progress in general. Vitrolife is a company founded in 1994 and it is helping people to become parents by developing high quality products and services to treat human infertility. (Vitrolife annual report, 2015) Table #1 Looking at the figures displayed above in table#1 and assuming that this information is relevant we can see a steady growth practically on each position. Analyzing the report on employees we can see that throughout the period of 2009-2013 the number of staff increased to 47 percent. Taking into account the field where the company is operating, the growing demand of their services the forecasts are positive. There is three-part business reporting model contains following parts: introduction, body and conclusion but unfortunately this model does not work well when it comes to annual reports. People tend to pay attention only to the opening part of content whereas the essential and key information is hidden at the end of the section. The aim is to get the reader interested in the information beyond the initial part and convince them in content’s value. This can be achieved through putting introduction and summary together or simply putting the bottom line on top so that the beginning contains a few important highlights. By using plain, informative language you will result in pulling readers no matter who they are into the story. Providing your report with tables, diagrams, illustrations will make it informative and easy to understand. An annual report remains the only way to present the small company or corporation in the best way possible; it builds a road to potential investors. Unfortunately many roads are blocked by growing complexity and thus investors fail to read the report effectively. We live in a world of business and information. Everything that surrounds us is a product of someone’s business and as we are all consumers and it is essential for us to be interested in information underneath, we need to feel secure about the products and the company we deal with. Annual report is a language of financial communication for building beneficial relationships and customer’s confidence. Investors want to protect their investments so they need the evidence of sound management and the company is operating in a market which offers opportunities of growth and prosperity. As for the customers they need to be informed about the current status of the company and to choose it as a long-term supplier. Therefore information on research and product plans may also be of great interest as this might result in integration of customer’s own developing plans and actually turn them into potential investors. No matter who you are – potential investor, customer or employee you feel the need to know where the company has been, in what state it is now and where it is going in the nearest future. They say simplicity is not simple and yet it is a powerful weapon to keep content clear and informative and protect it from being misleading and confusing or even boring. Thus, confidence and trust will be the result of the well-prepared report. Reference List Leviticus, J. (n.d.). What Is the Purpose of Company Annual Reports? Retrieved March 27, 2015, from http://smallbusiness.chron.com/purpose-company-annual-reports-57428.html Duff, V. (n.d.). What Are the Contents of an Annual Report? Retrieved March 27, 2015, from http://yourbusiness.azcentral.com/contents-annual-report-5723.html Reducing Complexity in Reporting Financial Instruments. (2008, March 19).Retrieved March 27, 2015, from http://www.ifrs.org/Current-Projects/IASB-Projects/Financial-Instruments-A-Replacement-of-IAS-39-Financial-Instruments-Recognitio/Discussion-Paper-and-Comment-Letters/Documents/DPReducingComplexity_ReportingFinancialInstruments.pdf IR Resources. (n.d.). Retrieved March 28, 2015, from http://www.irs.org.uk/resources/annual-reports M, S. (2012, October 6). The Conceptual Framework for Financial Reporting –IFRSbox. Retrieved March 30, 2015, from http://www.ifrsbox.com/conceptual-framework-financial-reporting/8. Ketchen, R. (2011, October 12). What makes a good annual report? Retrieved March 30, 2015, from http://irwebreport.com/20111019/what-makes-a-good-annual-report/ Vitrolife annual report. (2015). [online] Available at: http://www.vitrolife.com/Global/Corporate/Financial-eng/Reports/2013_Eng/Summary%20Annual%20Report%202013.pdf [Accessed 1 Apr. 2015]. Read More