Once each year, a corporation communicates to its stockholders and other interested parties by issuing a complete set of audited financial statements. The annual report, as this communication is called, summarizes the financial results of the company's operations for the year and its plans for the future. Many annual reports are attractive, multicolored, glossy public relations pieces, containing pictures of corporate officers and directors as well as photos and descriptions of new products and new buildings. Yet the basic function of every annual report is to report financial information, almost all of which is produced by the corporation's accounting system.
The content and organization of corporate annual reports have become fairly standardized. Excluding the public relations part of the report (pictures, products, and propaganda), the following items are the traditional financial portions of the annual report:
Letter to the Stockholders
Management's Discussion and Analysis
Notes to the Financial Statements
Management's Report on Internal Control
Management Certification of Financial Statements
Supplementary Financial Information
In this appendix, we illustrate current financial reporting with a comprehensive set of corporate financial statements that are prepared in accordance with generally accepted accounting principles and ...