Chapter 1, Problem 2P

The annual report is considered by some to be the single most important printed documentthat companies produce. In recent years, annual reports have become large documents.They now include such sections as letters to the stockholders, descriptions of thebusiness, operating highlights, financial review, management discussion and analysis, adiscussion of company internal controls, segment reporting, inflation data, and the basicfinancial statements. The expansion has been due in part to a general increase in thedegree of sophistication and complexity in accounting standards and disclosure requirementsfor financial reporting.
The expansion also is reflective of the change in the composition and level of sophisticationof users. Current users include not only stockholders but also financial andsecurities analysts, potential investors, lending institutions, stockbrokers, customers,employees, and—whether the reporting company likes it or not—competitors. Thus, areport that was originally designed as a device for communicating basic financial informationnow attempts to meet the diverse needs of an ever-expanding audience.
Users hold conflicting views on the value of annual reports. Some argue that theyfail to provide enough information, whereas others believe that disclosures in annual reportshave expanded to the point where they create information overload. Others arguethat the future of most companies depends on acceptance by the investing public and byits customers; therefore, companies should take this opportunity to communicate well-definedcorporate strategies.
REQUIRED

1. Identify and discuss the basic factors of communication that must be considered inthe presentation of the annual report.
2. Discuss the communication problems a corporation faces in preparing the annualreport that result from the diversity of the users being addressed.
3. Select two types of information found in an annual report, other than the financialstatements and accompanying footnotes, and describe how they are helpful to theusers of annual reports.
4. Discuss at least two advantages and two disadvantages of stating well-defined corporatestrategies in the annual report.
5. Evaluate the effectiveness of annual reports in fulfilling the information needs of thefollowing current and potential users: shareholders, creditors, employees, customers,and financial analysts.
6. Annual reports are public and accessible to anyone, including competitors. Discusshow this affects decisions about what information should be provided in annual reports.(CMA Examination, adapted)