An annual report is a global look at a company’s financial performance, and activities in the financial year prior. An annual report’s major constituency is shareholders, but it is also directed at other stakeholders, such as bond holders. In most states, a company is required to file its annual report with the company’s registry or Secretary of State. In this article, we will look at everything you should know about annual reports.
In most states, corporations and any other business structure with shareholders, annual reports must be filed, otherwise, that business will lose its status as a corporation. This can have severe tax implications for a business.
Apart from fulfilling compliance requirements, annual reports are useful for attracting new investors, retaining the support of current shareholders and other stakeholders, and giving the investment community and insight into the corporation’s financial performance and activities.
Very large companies must not only file an annual report, they must also file a 10-K with the Securities and Exchange Commission. These companies generally have annual profits of $10 million and above and at least 2000 shareholders.
The Content of an Annual Report
Typically, annual reports include sections on general corporate information; a review of the operating and financial results; the Chairperson’s letter to shareholders; the auditor’s report; financial statements; notes to the financial statements; accounting policies and other sections.
The business may choose to disclose additional information to stakeholders. For instance, a manufacturing firm will include an operations report; or a firm whose operations are environmentally or socially sensitive, may include a corporate social responsibility report. Large companies often make their annual reports very sleek and glossy. Research shows that optimistic tones in annual reports are associated with lower audit fees. In other words, auditors consider the tone of the annual report when assessing a business’ audit risk.
The contents of an annual report are important for investors trying to assess the financial performance and operations of a business and determine its valuation and prospects. In the United States, annual reports must be written in compliance with Generally Accepted Accounting Principles.
The specific content of an annual report is determined by each state’s requirements. In states where businesses must file an annual report, the Secretary of state will stipulate the filing requirement. Often, the secretary of state will forward the annual report form to each company or that company’s registered agent. To learn more about the filing requirements of an annual report, click here.
Filing the Annual Report
Depending on the size of the firm, someone within the company, or a third party, will prepare the annual report. In very large companies, there will often be staff dedicated to preparing the annual report.
Annual reports should be filed in a timely manner. Your state will determine the filing timeline for your company, as well as the filing fees. Finally, if you fail to file your annual report, and pay the filing fees, your business will be at risk of losing its corporation status or severe penalties.