MAICSA PERSPECTIVE: A monthly series by The Malaysian Assssociation of The Institute of Chartered Secretaries and Administrators
EVERY company listed on the stock exchange is required to release its financial statements, which are incorporated in the annual report, at the conclusion of its financial year for the general information of investors, shareholders and stakeholders.
The annual report is therefore the single most important document for investors and others interested in learning more about the company they are investing in.
It is also the single most important document released by the company that provides an accurate and current state of affairs of the company.
Financial statements are included in the annual report and tabled during the AGM that shareholders attend and where they are invited to ask questions, seek clarification and agree or disagree with resolutions being tabled, including payment of directors' remuneration, approval of dividend payments, an0d re-election of board members retiring in that year.
What then is an annual report?
An annual report is a report on the company comprising its financial statements for the past fiscal year with prospects for the immediate future and includes a report from its various subsidiaries that have contributed towards its financial results.
It would include the auditors’ report and their report on the financial state of the company.
The annual report is a summary of the activities that the listed company has undertaken, including its achievements, a brief bio-data of the members of the board, a photographic display of the products that are manufactured by the company and its various projects that act to entice future shareholders to invest in the company.
Most importantly, the annual report will include the notice of the forthcoming AGM of the company and the proxy form.
What would make a good annual report?
A good report should be comprehensive and attractive so as to attract sufficient attention from the general public to want to read it to know more about the company.
A good annual report would include sufficient information and should contain short sentences, should not be too lengthy and should be an easy source of information for future and present investors.
Not only should the information be readily accessible, the contact addresses and other information which will assist anyone in contacting the company should appear prominently.
In Malaysia, annual reports are issued in a single language or are multilingual – English, Bahasa Malaysia and Chinese.
The KLSE annually presents awards for best-designed annual reports called the National Annual Corporate Reports Award (NACRA) – covering the main and second boards.
This annual event provides an impetus and drive for listed companies to take pride in issuing annual reports that not only conform to the requirements but also are aesthetically pleasing to the reader.
How does one create a good annual report?
To publish an annual report that is good and at par with or surpasses other publications, the annual report should contain all relevant information and yet be easily digestible by shareholders and anyone interested in knowing more about the affairs of the company.
There are many variants of annual reports judging from the wide range of companies listed on the local bourse, and a random sampling reveals that in order to qualify as a good annual report the following information should be included:
·The chairman’s statement. The statement and its contents are very critical to a good annual report.
The chairman’s statement would include activities undertaken by the company in the past year with current-year forecast and the future prospects of the company, comprising information that should have first been released to the stock exchange for clearance before it is published in the annual report.
The chairman’s statement should not exceed three pages and contain sufficient information to reflect the future of the business and his personal conviction as to the way forward.
If the industry has been affected by market trends, these ought to be highlighted by the chairman, who will comment on how the company is addressing this issue.
A paragraph on internal control procedures in the company will be included in the chairman’s statement.
Some companies report on their nomination and remuneration committees separately, others may include this portion in the chairman’s statement.
·This is followed by a report from the audit committee.
It is usual to find an audit committee report comprising just the terms of reference guiding the audit committee, the frequency of meeting and names of the members that comprise the audit committee.
To be effective, a good audit committee report should contain a brief write-up on activities undertaken by it in the last financial year and its findings.
·Next there will be the directors’ report where the change in board members and their direct and indirect interests in the company including shareholdings held and the movement of their shareholdings during the year under review are provided. Any change in directors during the year will be noted in this report.
An annual report will also incorporate the gist of the financial statements for the year under review, incorporating the profit and loss account, balance sheet, cashflow statement and notes to accounts.
To enhance the annual report, photographs of the various plants, machinery, projects and events would provide readers with a clearer picture of the activities undertaken by the company.
Also significant are milestones achieved by the company and its subsidiaries in the past year, which will allow readers to determine the viability of investing in the company.
The corporate details in the front page of the annual report, provides the list of directors, the company secretary, auditors, bankers, lawyers, and such other information that is relevant in determining the whereabouts of the business.
Addresses of the board members are not to be revealed, but the business and operations addresses will be useful information that should be included in the annual report.
A good annual report should therefore include a story of the business of the company in the past year and hint at future prospects for growth and other opportunities that investors might need to know to make an informed decision on whether to invest in that particular company.
The annual report will not be read just before the AGM, it will be distributed to banks and other financial institutions, investment houses, as well as when the company intends to enter into future business ventures with new partners and for a host of other events. A good annual report should therefore be sufficiently detailed and yet succinct.
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