The reasons why the companies acts place these requirements on a Limited Company (Ltd) is because it’s a much larger company compared to a Partnership, and has more responsibilities. Even though the shareholders are not that involved with the day to day running of the business, they appoint directors who have more power to run the company. This is why the reports have to be completed with a lot of detail, so the shareholders can read up on how the business is running.
Most of the firms in the UK are limited companies, this is because Sole Traders and partnerships have unlimited liability for the debts of the firm, for example if a firm cannot afford to pay its creditors, it may result against the owner of the firm who would then have to settle up the payment.
Also the Limited Company, unlike the Sole Trade and Partnership, is a separate legal entity, regulated by the Companies Act 1985, where it is owned by shareholders and managed by directors.
2)
There are many different users of annual reports, each one in need of different information from the data produced by the accountant, so it’s the accounts job to make sure the reports are appropriate and understandable to all users.
I am now going to explain what information the following users obtain from the Annual Report. These are:
- Ordinary Shareholders
- Customers, and
-
Employees.
Ordinary Shareholders
Shareholders are an important group of users of the reports. They are given the report before the Annual General Meeting, so they can discuss whether to keep the same management team, or decide on a vote for more people. They should also be told how the management has used their funds, which have been invested into the business, and the report also gives them information about the profitability and safety of their investment, so they can evaluate the performance of the management.
Shareholders are interested in the economic strengths and weaknesses of the report, including its liquidity, its present and future requirements for extra capital, and the companies’ ability to increase long and short-term finances. Ownership and control of the company is another section of the report that they would want to investigate. The information they might be interested in is about the directors trading in the companies shares, because if the company directors are selling them, then what are the reasons.
Shareholders would want to know about the future performance of the business, this includes its capacity to pay dividends and to predict in the future for any investments that might go ahead.
Customers
Customers of a particular business may use the annual report to collect statistical information to assess the company if a long-term contract has been entered into. They would also want information on source of supply because the next action that the customer could take is to find out if the company completes long-term contracts. The reason being if a customer had purchased a manufactured good from them, the customer would want to know if it comes with a warranty, and in the future if anything went wrong with their good, if it was possible to get spare parts to get the good in working order again.
Customers would also use the annual reports for comparison if they were in competition with a company. The information would help them come to a decision on how the company controls their finances etc.
The customer might want to obtain information on the employment patterns, so he / she could use the annual report to look at them, to see how many part-time / full-time staff they employ into the company. This information would help them if they were looking for a job.
Employee’s
Employee’s also use accounting information and find it useful when it comes to assess the potential of the business.
“The reporting entity has a responsibility for the future livelihood and prospects of its employee’s” A, Thomas Financial Accounting Third Edition, P6.
Employee’s can use the annual report to get information on the company to see if they can offer the security of employment and the prospects of promotion over a period of years. They may also use it to require information for the purpose of wage bargaining, this information relates to the ability of the employer to meet demands from the employee’s, these being higher wages, employment levels, working conditions etc.
In addition employees are also interested in the accounting information to see the position, progress and prospects of the company, as they have invested their life and career into the company, it would be nice to find out if it was worth staying with the company or to adjust their plans for the future. Also with the info employee’s can make decisions, and negotiate profit sharing arrangements.
Some companies produce an “Employee Report based on the accounts, but highlighting certain items such as training expenditure and statistics of interest to employee’s”. Pizzay, A, Accounting and Finance. P10
3)
My chosen company that I was interested in is the BBC. I obtained the Annual Report from the learning centre. The Annual report covers several points, I have just selected a few parts of the information, which I think would be relevant, useful and understandable to an average person, which I will now go on to explaining about.
These are:
- Board Of Governors
- Fair Trading
- Accountability
- Financial Statements
- Getting In Touch
Board Of Governors Pg 4 & 5
This part is at the beginning of the report, where it gives you details of the twelve governors for the BBC. For each governor there are a few lines giving details on when he or she was born, and when they became governor, and what their role is etc. To an average person they could use this information to read up on the governor’s goals, which they intend to achieve, or goals that they have achieved.
Fair Trading Pg 44 - 47
An average person could look at the Fair Trading part to see their trading techniques; they may want to find out if people have made complaints about the BBC e.g. on the way that they trade etc. This part could also be useful to find out if they involve their Fair-Trading internal as well as external. Some information might be useful on what measures they need to take on the Fair Trading issues, in order for them to improve.
Accountability Pg 32 - 36
This part of the report is all about the BBC’s Accountability and how they are accountable to others. It gives a review of the BBC’s existing accountability activities and also mentions improvements that they have made towards accountability. To an average person this part would be useful because you could find out whom the BBC attracts as their customers, and why, and how they control their accessibility, such as do they log telephone calls, get back to written comments, and queries, do they give customer satisfaction etc. In this part of the report you can also find information on cultural diversity, this could be useful to find out if they lack of ethnic minority groups in certain programmes.
Financial Statements Pg 47 - 48
The financial statements include the Profit & Loss Account, and the Balance Sheet; basically it gives you the key numbers on how the company did in the previous year. This could be useful to someone because they can find out the sales, profits that have been made after the financial year, and if the BBC had fallen into any debt etc. A person might want to know who audits the financial statements and if the regulations are met where the statements give a true and fair view, in accordance with the Companies Act 1985.
Getting In Touch Pg 85
I thought that an average person would understand this part, because it gives a number of addresses, and telephone numbers of not only the BBC but also other companies. This would be helpful if you had a query, or you wanted to share your views on the BBC’s television programmes.
It also states information about working at the BBC, if a person was interested and wanted to apply or find out more information about a particular job, then this information would be helpful to them.
If a programme has been shown on the BBC that you think had breached their standards then there is also information where you can forward your complaints, and if you were interested in the BBC itself and enjoy watching the programmes then you could send off for free tickets to take part in their audiences.
Bibliography
Book Sources
Atrill, P. & McLaney, E. (2001) Accounting and Finance for Non – Specialist, Third Edition, Prentice Hall.
Bull, R, J. (1990) Accounting In Business, Sixth Edition, Butterworth & Co Publishers.
Pizzey, A. (1990) Accounting and Finance, Third Edition, Cassell Publishers.
Thomas, A. (1999) An Introduction To Financial Accounting, Third Edition, Mcgraw – Hill Publishers.
Wood, F. Business Accounting 1. Fifth Edition, Pitman Publishers.
BBC Annual Report (2001) – Annual Report – Learning Centre.