Each of the 6 questions should be between 45-125 words answers
report is considered by some to be the single most important printed document
that companies produce. In recent years, annual reports have become large
documents. They now include such sections as letters to the stockholders,
descriptions of the business, operating highlights, financial review,
management discussion and analysis, segment reporting, and inflation data as
well as the basic financial statements. The expansion has been due in part to a
general increase in the degree of sophistication and complexity in accounting
standards and disclosure requirements for financial reporting. The expansion
also reflects the change in the composition and level of sophistication of
users. Current users include not only stockholders, but financial and
securities analysts, potential investors, lending institutions, stockbrokers,
customers, employees, and (whether the reporting company likes it or not)
competitors. Thus, a report that was originally designed as a device for
communicating basic financial information now attempts to meet the diverse
needs of an expanding audience. Users hold conflicting views on the value of
annual reports. Some argue that annual reports fail to provide enough
information, whereas others believe that disclosures in annual reports have
expanded to the point where they create information overload. The future of
most companies depends on acceptance by the investing public and by their
customers; therefore, companies should take this opportunity to communicate
well-defined corporate strategies.
1. The mission of
the US Securities and Exchange Commission (SEC) is to protect investors,
maintain fair, orderly, and efficient markets, and facilitate capital
formation. Identify several ways that the SEC accomplishes its mission.
2. The goal of
preparing an annual report is to communicate information from a company to its
targeted users. (a) Identify and discuss the basic factors of communication
that must be considered in the presentation of this information. (b) Discuss
the communication problems a company faces in preparing the annual report due
to the diversity of the users being addressed.
3. Select two
types of information found in an annual report, other than the financial
statements and accompanying footnotes, and describe how they are useful to the
users of annual reports.
4. Discuss at
least two advantages and two disadvantages of stating well-defined corporate
strategies in the annual report.
5. Evaluate the
effectiveness of annual reports in fulfilling the information needs of the
following current and potential users: (a) shareholders, (b) creditors, (c)
employees, (d) customers, and (e) financial analysts.
6. Annual reports are public and accessible to
anyone, including competitors. Discuss how this affects decisions about what
information should be provided in annual reports.