Financial statements are a record of all financial activities of a company and are prepared in a structured manner so as to be easily understood by all, mainly the investors, shareholders and the SEC. An annual report on the other hand contains much more than mere financial statements though the basic purpose is to provide all relevant financial information about the company to all stakeholders. Thus there are similarities in a financial statement and an annual report that confuses many and they treat both as same which is wrong. This article will explain the differences between the two so as to remove all doubts from the minds of readers.
An annual report is like a result card of a student issued at the end of the year when he has taken all examinations. It does include financial statements, the statement of income, profit and loss account, statement of changes in equity as well as the statement of cash flows. But for an annual report, these financial statements are mere numbers that reflect the financial health and the profit or loss accruing to the company. Annual report has a broader scope and it includes a letter from the CEO of the company, details about new products or services, plans for the future, introduction of the directors and the management team. It is mandatory for public companies to include information that is required by the SEC.
What’s the difference between Annual Report and Financial Statements
The difference in annual report and financial statements stems from the basic purpose they serve. The basic objective of financial statements is to present in clear cut terms and numbers, financial position, performance in the past and changes in financial positions of a company that are necessary for shareholders and investors. These financial statements are transparent, easily understood, and comparable to similar organizations. All assets, liabilities, profits and expenditures must be easily accessible from these financial statements. The purpose of an annual report on the other hand is to present a broader picture about the company than mere financial numbers. It discusses products, new markets; strategies and direction that a company proposes to take in future apart from all the financial data.
|
Annual Report vs Financial Statements • Financial statements and annual report of a company are different documents that provide different information to all stakeholders. • While financial statements, as the name implies, provide all the information regarding financial activities of the company, annual report is much more than mere numbers reflected by a financial statement • Annual report is wider in scope and includes, letter from the CEO as well as future plans and strategies of the company apart from financial statements.
|