How to create an annual report
Which topics need to be included in an annual report?
The annual report is often an extensive document that you create with different departments (and colleagues) and for different target groups. How do you approach such a project? What do you put in the report and how do you ensure that it is also widely read? In this blog series we will answer all these questions and help you to make your annual report a success! We kick off with part 1 and answer the question: What should be included in an annual report?
But first: who are you writing the annual report for?
You write your report for your stakeholders. Who they are, of course, differs per organisation. But think of the government, your shareholders, (potential) investors, suppliers, donors, family members of clients, tenants, journalists and much more. In your annual report you report to your stakeholders in a transparent manner about the activities and the financial situation of your organisation. For example, the government wants to know whether the subsidies are well spent. Your investors and donors want to see what happened to their money. Potential investors want to determine whether they want to do business with you. Family members of clients want to see what you have done and will do to provide the best possible care. Tenants want to see where the money from the rent (increase) goes. And journalists are always looking for background information (or a scoop).
What should be included in an annual report?
An annual report consists of at least the financial statements and the management report. The financial statements comprise a balance sheet, a profit and loss statement, and a cash flow statement, along with explanations for all items. The foundation of the financial statements is roughly the same for all organizations.
Management reports come in various shapes and sizes. Different types of organizations have different subjects to report on. But are there no rules? There certainly are. The Dutch Accounting Standards Board has compiled the following list of topics that should be included in a management report, based on legal requirements:
1. Policy, course of events and previous expectations
In this section, you explain the policies implemented during the reporting year and their outcomes. Tip: Utilize visuals such as infographics or key performance indicator (KPI) summaries to enhance understanding, rather than relying solely on text.
2. Objectives and core activities
Outline your organisations' objectives, the scope of work, and the core activities associated with them.
3. Business construction and workforce developments
Explain the legal and organisational structure. This information helps readers in interpreting the financial figures. Additionally, report on workforce developments during the reporting period.
4. Financial developments
In the management report you provide an explanation of the financial developments of the past year. You also refer to the annual accounts in which this information is further specified.
5. Risks and risk management
Describe the main risks that your organisation may face and explain what measures you are taking against them.
Tip: visualise the risks with an interactive risk matrix.
6. Culture and behaviour – soft controls
Here you indicate whether measures have been taken to influence the culture or to change the behaviour and motivation of employees.
7. Financial instrument risk policy
This is specifically about the financial risks you run. Which are they? And what measures do you take to still be able to pay all expenses and to remain financially healthy?
8. Application and compliance of codes of conduct
If your organisation adheres to codes of conduct, include a link to these codes and report on your compliance with them.
9. Research and development
If your organisation is engaged in research and development and receives subsidies for it, you need to explain how you have used or will use the subsidy. Don't worry: you don't have to disclose information that could jeopardise your competitive position.
10. Future expectations
What developments do you anticipate in the coming years? Are you expecting growth, launching new products, or anticipating changes due to specific regulations? This year, you describe your expectations. And next year, you'll reflect on them (see also point 1).
11. Other topics
Depending on the type of organisation or demands from your stakeholders other topics subjects can be important in your annual report. There are, for example, additional requirements for listed companies and there are specific requirements for certain industries.
Good to know: this is a list of topics that should be covered if they are applicable to your organisation. It's not a chapter structure. You have the freedom to structure the management report according to your preferences, as long as all required components are included. When creating your chapter structure and describing the topics, also keep your stakeholders/audience in mind. Make sure that they can easily find the information they need.
What's next?
You now know which topics have to be covered in your annual report. It is now time to gather all information and put it together into a report. How do you do that? Read more in the next episode of this blog series