Annual Report vs. Financial Statements – The Difference Between

The difference between annual reports and financial statements

Issuing annual reports and financial statements is common in companies and organization where there are shareholders because these people need regular updates on the financial health and stability. A financial report contains a comprehensive listing of all the financial activity that has been carried out over a set period of time. It is prepared in a very structured manner so that it is easy for all concerned to be able to read and understand the information it contains. An annual report is intended to relay all the financial information for the full year to all stakeholders. Although both are similar in some ways, there are great differences between them.

An annual report can be compared to a report card that a student receives at the end of a school year or semester. The financial statement is one aspect of the report. It also includes the profit and loss statement for the year, any changes that occurred in the equity and the current cash flow. However, all of this information is reported in numbers that show the health or ill-health of the business or organization. It has a very broad scope and includes a letter from the CEO, in-depth details about new products or services that were introduced in the past year, a listing of the directors and managers and details of the future plans. Any information required by the SEC has to be included in the annual reports of publicly traded companies.

Main differences between annual reports and financial statements

The main difference between the two lies in the basic purpose of each one. The purpose of a financial statement is to relay to the stakeholders all pertinent financial information about the activities, its financial position and any changes that occurred in the reporting period. They are very similar in format across all companies and organizations and are easy to understand. By reading the statement, stakeholders will be able to gain information about the income and expenses, as well as the liabilities and assets.

An annual report is broader in scope. It gives a full picture of the company and is more than just numbers. The information discusses new products and services as well as the direction the company plans to take for the upcoming year.

Summary

  • Financial statements and annual reports provide different information to the stakeholders.
  • Financial statements contain mainly numbers, but annual reports provide information about all facets of the company.
  • An annual report contains a letter from the CEO, discussions about new products and services and the future plans.