Annual reports are now an accepted part of corporate functioning, but this was not always so. Let us take a look at the origins of annual reports. The regulations drawn up by the Securities and Exchange Commission clearly specifies the mandatory information to be included in the document. To avoid favorable interpretation of these regulations, the SEC had framed a detailed and comprehensive set of rules that gives no room for ambiguity. The defaulting companies can face legal proceedings against them. The lawsuits against corporations for breach of regulations have increased over the years. The 1970’s were a crucial decade with respect to the evolution of these regulations. The laws pertaining to corporate governance and accountability had grown in complexity from then on, although they build on the foundation laid by the Securities Act of 1933 and the Securities Exchange Act of 1934. In a way, the SEC transformed publication of annual reports from an accounting activity to a legal one. Companies that mislead the public through the usage of deceptive language and fudged up numbers face severe penalties.
The annual reports are widely used by different categories of people. Let us delve into the kind of analysis that each of these groups do. Many employees eagerly look forward to the annual report for explicit and implicit information. Explicit information comes in the form of recognizing outstanding performers during the course of the year. Some of the innovations conceived by the employees are showcased. Information that will have an indirect bearing on the work force include mergers and acquisitions, new policies toward efficiency and innovation, newly adopted procedures for improved cost-cutting, expanding business operations elsewhere in the geo-political landscape, etc. These announcements are neither good nor bad by themselves. Depending on the size of the company, its market sector, general economic and political conditions, etc, they could have varied implications. This is the sort of information that employees gather to stay ahead in the game. Some analysis of department-wise performance is also given. This can be an indicator of the future prospects of a department and its team members. Most employees also hold shares of the company they work for. So this makes it doubly important for them to have a sound grasp of the company’s business prospects.
The information disclosed in these documents is equally valuable to customers and suppliers. If the product or service offered by the corporation is of substantial monetary worth, then regular customers want assurance that they will receive quality after-sales service. By reading the annual report carefully, customers can decide whether their expenditure is worth it. Suppliers are another group whose business fortunes depend on a regular order of supplies from the corporation. Some small-scale suppliers can be solely dependent on a handful of companies for the bulk of their business. By elucidating to the suppliers the nature of processes adopted in transforming the supplies into the consumable products, the former can gain better understanding of what the company expects. In such scenarios the information gathered by a careful analysis of the report can be vital. The general public at large can also benefit because a corporation’s health gives a snapshot of the industry’s and the economy’s strength in general. Also, when a company achieves a positive public image, communities from various political jurisdictions will compete and put pressure on their government representatives. In turn the politicians tend to offer subsidiaries and other concessions to the corporation, in the hope that it will translate into more job offers for the members of the constituency.