Annual report manual - What it contains and how to draft one

A company’s annual report aims to provide stakeholders — shareholders, employees, suppliers, customers and other interested parties — with an understanding of the company’s mission, its objectives and its achievements over the past year.

Producing a reliable annual report is a significant organisational effort. It draws on financial data, ESG information, governance disclosures and narrative content from across the business. When the underlying data is consistent and well-documented, the process runs smoothly. When it is not, the annual report cycle becomes a period of corrections, escalations and late nights for finance and sustainability teams.

WHAT’S IN THE ANNUAL REPORT

The annual report covers many areas, including:

Letter from the CEO: This letter provides a summary of the company’s performance during the year and highlights key achievements and challenges.
Strategy and Business Overview: This section provides an overview of the company’s operations, markets, products or services and competitive position.
Performance Review or Management’s Discussion and Analysis (MD&A): This section provides an in-depth analysis of the company’s financial results, including key financial metrics and trends.
ESG: Corporate Governance: This section describes the three key factors used to measure the sustainability and ethical impact of a business or company. It outlines how a company manages its ESG issues and performance.
Remuneration Report: Here, the remuneration principles and procedures are explained as well as the remuneration paid to the members of the Management Board.
Financial Statements: This section includes the company’s financial statements, including the balance sheet, income statement, cash flow statement and footnotes to provide more details on balance sheet positions and transactions that have occurred during the period.
Auditor’s Report: This report provides an independent opinion on the accuracy and completeness of the company’s financial statements.
Shareholder Information: This section provides information on the company’s stock performance, dividend policy and dividend payment and dates such as shareholder meetings

Note that the specific content and structure of an annual report can vary depending on the company, its industry and the regulatory requirements.

THE ANNUAL REPORT AS AN OPPORTUNITY

The annual report is a perfect opportunity for a company to highlight its accomplishments and the impact of those accomplishments. Stakeholders want to know why the company has achieved its objectives expressed in last year’s annual report or, more importantly, why it has not. What measures were taken to realise the objectives and when? How has the company adapted to new market conditions and what are the implications for the future? By connecting a company’s activities and achievements to its mission statement, a company can build trust and foster long-lasting relationships with its stakeholders.

It is apparent that the annual report is a recurring task and can be a major challenge to compile every year. The process begins with the early engagement of all parties responsible for providing content. The process for preparing the annual report is outlined below.

Annual report

Collecting all the necessary information requires preparation. Those who contribute to the content of the annual report must ensure that the data is available, accurate and consistent with sections prepared by other contributors. Multiple rounds of corrections are usually required to achieve a stable document that best reflects the company’s position and perspective.

However, this is not a one-time recurring event. Having reliable data to disclose all starts with the timely and accurate registration of every transaction throughout your organisation.

ANNUAL REPORT AUDIT

For most organisations, the financial statements within the annual report are subject to an independent audit. The external auditor reviews the company’s accounting policies, processes and underlying records to form an opinion on whether the financial statements give a true and fair view of the company’s financial position and performance.

In recent years, the scope of the annual report audit has expanded significantly. Auditors are increasingly required to issue an opinion on ESG disclosures and reporting as well, initially for listed companies, but this requirement is extending to a broader group of organisations in line with CSRD and related regulations. This means that both financial and sustainability data must be well-documented, internally consistent and traceable back to underlying sources.

Preparing for an annual report audit is considerably easier when accounting policies are clearly documented, consistently applied and accessible to the teams responsible for preparing the data. Recurring audit findings often point to the same root cause: guidance that exists in principle but is not embedded in daily practice.

ADOPTION OF THE ANNUAL REPORT

The executive board authorises the annual report for issue. At the Annual General Meeting (AGM) of shareholders, the financial and ESG statements within the annual report are adopted.

HOW FIDUGIUS SUPPORTS ANNUAL REPORT PREPARATION

The reliability of an annual report depends on what happens throughout the year, not just in the weeks before the deadline. When accounting policies are consistently applied, ESG data is collected according to documented methodologies and finance teams work from the same definitions, the annual report process becomes more predictable and the audit becomes more manageable.

The Fidugius Financial Accounting & Reporting Manual and ESG Reporting Manual bring all relevant policies, procedures, definitions and booking instructions together in one structured platform, giving everyone involved in annual report preparation a clear and up-to-date reference at the moment they need it.

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