Chapter 4: presentation of the financial statements
Annual report: communicate important financial information and management
reviews to shareholders, creditors,…
Learning objective 1: appreciate
Appreciate the role of the annual reports as a communication tool
Annual reports:
Number 1 source of information for shareholders, lenders, potential
investors,…
Project and share a vision, goal, strategies
Also done by charities, welfare organizations,… = commercial entity
no shareholders
Substance of style
It’s not the look of the annual report that matters, it’s the substance that matter.
Obtaining annual reports
Traditionally: send out to shareholders
Now: you can obtain it over the internet on their corporate website
Corporate website =/ consumer website
Typical structure of an annual report
Small private company: financial statements + accompanying notes
Larger company: more investors, more content
Structure:
1. Corporate information
2. Analysis and commentaries
3. Other statements and/or disclosures
4. financial statements
corporate information
ex: history of the company, members of the board of directors, key management
personnel, organizational structure of key subsidiaries, financial highlights,
awards and accolades,…
analysis and commentaries
chairman and CEO statement
role of CEO and chairman
Discusses achievements in the financial year, returns to shareholders, and
the key goals for the future.
Usually, a letter from the Chairman of the Board of Directors (or President
of the company)
, Other statements and disclosures
Corporate governance
Refers to set of principles adopted by an organization
Ensures corporate direction, responsibility, and accountability
Prescribes composition and responsibilities of the board of directors
Internal control
Compensation report for directors and senior management team
Additional reports
sustainability or corporate social responsibility (CSR)
Ethics , social and governance (ESR)
Environmental, social and governance (ESG)
o Targets the sustainable development goals (SDG’s)
Financial statements
An acknowledgement by directors and management
An auditor’s report
The full set of financial statements
Statement of responsibility
Important element of corporate governance
Says that everybody in the company has to live up to their responsibilities
Auditors report
An independent business is hired to check the financial statements
Is it up to legal standards
Addressed to the board of directors and shareholders of the company
The enhanced audit report on financial statements typically contains 4 sections
1. Identifies the audited financial statements as well as the company being
audited
2. Summarizes auditors opinion
3. How the audit was performed in line with auditing standards
4. Describes the reasonability’s of various parties
Unqualified opinion: issued when financial statements fairly represent the
company’s financial position. It is the highest statement of assurance that an
independent auditing firm can express
Qualified opinion: issued if the financial statements are fairly presented, except
for disagreement on how to treat a particular transaction
Adverse opinion: opposite of an unqualified opinion, i.e., the financial
statements do not fairly represent the company’s financial position
Annual report: communicate important financial information and management
reviews to shareholders, creditors,…
Learning objective 1: appreciate
Appreciate the role of the annual reports as a communication tool
Annual reports:
Number 1 source of information for shareholders, lenders, potential
investors,…
Project and share a vision, goal, strategies
Also done by charities, welfare organizations,… = commercial entity
no shareholders
Substance of style
It’s not the look of the annual report that matters, it’s the substance that matter.
Obtaining annual reports
Traditionally: send out to shareholders
Now: you can obtain it over the internet on their corporate website
Corporate website =/ consumer website
Typical structure of an annual report
Small private company: financial statements + accompanying notes
Larger company: more investors, more content
Structure:
1. Corporate information
2. Analysis and commentaries
3. Other statements and/or disclosures
4. financial statements
corporate information
ex: history of the company, members of the board of directors, key management
personnel, organizational structure of key subsidiaries, financial highlights,
awards and accolades,…
analysis and commentaries
chairman and CEO statement
role of CEO and chairman
Discusses achievements in the financial year, returns to shareholders, and
the key goals for the future.
Usually, a letter from the Chairman of the Board of Directors (or President
of the company)
, Other statements and disclosures
Corporate governance
Refers to set of principles adopted by an organization
Ensures corporate direction, responsibility, and accountability
Prescribes composition and responsibilities of the board of directors
Internal control
Compensation report for directors and senior management team
Additional reports
sustainability or corporate social responsibility (CSR)
Ethics , social and governance (ESR)
Environmental, social and governance (ESG)
o Targets the sustainable development goals (SDG’s)
Financial statements
An acknowledgement by directors and management
An auditor’s report
The full set of financial statements
Statement of responsibility
Important element of corporate governance
Says that everybody in the company has to live up to their responsibilities
Auditors report
An independent business is hired to check the financial statements
Is it up to legal standards
Addressed to the board of directors and shareholders of the company
The enhanced audit report on financial statements typically contains 4 sections
1. Identifies the audited financial statements as well as the company being
audited
2. Summarizes auditors opinion
3. How the audit was performed in line with auditing standards
4. Describes the reasonability’s of various parties
Unqualified opinion: issued when financial statements fairly represent the
company’s financial position. It is the highest statement of assurance that an
independent auditing firm can express
Qualified opinion: issued if the financial statements are fairly presented, except
for disagreement on how to treat a particular transaction
Adverse opinion: opposite of an unqualified opinion, i.e., the financial
statements do not fairly represent the company’s financial position
