Annual report

What it means

The annual report is the narrative document that adds context to the annual accounts: how the business developed, the state of the company, events after the period end, the expected outlook and other information the Accounting Act lists.

It is prepared by entities whose accounts must be verified by an auditor. Smaller companies are not obliged to produce one, though content of this kind can be worth writing voluntarily.

The annual report is not part of the financial statements, although it is published with them. While the notes explain individual line items, the annual report describes the company as a whole: what it did during the year, what threatens it and where it intends to go next.

How it works in practice

It typically covers the nature of the business, commentary on the results and their causes, information on employees, research and development, any branch abroad, and the risks the company faces.

The verified report is filed with the accounts in the register of financial statements. Groups preparing consolidated accounts attach a consolidated annual report.

We set the timetable so the report is finished before the audit closes, because the auditor checks its consistency with the accounts and comments on it in the audit report. Figures in the text are taken straight from the final statements, and we add the proposal for distributing profit or settling a loss.

What to watch out for

Boilerplate with no connection to the numbers is the most visible part of the document - and it is read by the people assessing the company from outside. A good report is a cheap credibility tool; a poor one raises more questions than it answers.

If the audit slips, the accounts can be filed first and the annual report added later within the period the law allows. Not filing it at all, however, breaches the Accounting Act and risks a fine, and a company without a published report looks opaque when a bank or partner assesses its creditworthiness.