While all stakeholders in a business organization have a use for the published Final Accounts, different stakeholder groups have unequal access to information that they may require.
Information that published Final Accounts contain
1. Profit and Loss Account (P&L Account)
To start with, Profit and Loss Account (P&L Account), or an income statement, contains financial data which business stakeholder groups find extremely useful. It shows the Sales Revenue, all business costs and profit or loss of a business over a given period of time.
Commonly, there are three sections each Profit and Loss Account (P&L Account) has. Each of those sections gives a different profit figure:
A. Trading Account
Trading account is the first section of Profit and Loss Account (P&L Account). It shows how much Sales Revenue the business made, what the cost of production was and how much Gross Profit, or loss, has been made from normal trading activities. Specifically, it shows the difference between a firm’s Sales Revenue and its costs of producing or purchasing products to sell.
B. Profit and Loss Account
Profit and Loss Account is the second section of Profit and Loss Account (P&L Account). It shows two different profits. First, Net Profit Before Interest and TAX, or the operating profit. And second, Net Profit After Interest and TAX, or the profit for the year.
C. Appropriation Account
Appropriation Account is the third and final section of Profit and Loss Account (P&L Account). It shows how Net Profit After Interest and TAX, or the profit for the year, is distributed between the owners. This is done in the form of paying out dividends to the company shareholders. Any remaining amount will be kept in the business as retained earnings for future business growth to fund new projects.
2. Balance Sheet
Balance Sheet gives different stakeholders useful information about the financial status of a business. Mainly, what the business owns and how did the business pay for it. A business can pay for what it owns either using its own money or using borrowed money.
Moreover, Balance Sheet, or Statement of Financial Position, shows the financial position of a business at one day only – usually the last day of the quarter or the year.
Commonly, the main parts of Balance Sheet include three sections. Each of those sections include different data:
- Assets. Assets are resources that are owned by the business.
- Liabilities. Liabilities are debts of the business that will have to be paid sometime in the future.
- Equity. Equity is the wealth of the business. In any company this Net Wealth belongs to the owners (shareholders).
3. Cash Flow
Briefly, Cash Flow shows movements of cash within a business.
Cash Flow relates to the timing of payments – receiving cash and spending cash. It is the sum of Cash Inflows, all the cash payments flowing into the business mainly from customers, less Cash Outflows, all the cash payments flowing out of the business mainly to employees, suppliers and lenders.
- Cash Flow Statement. A financial document that shows the actual movements of cash in and out of a business, per time period usually one year.
- Cash Flow Forecast. A financial document that shows expected movements of cash in and out of a business, per time period usually one year.
Information that published Final Accounts does not contain
Whilst business’s Final Accounts must be lawfully produced and published each year, it does not mean that they must reveal the whole truth about the firm. For this reason, companies will surely limit the financial information that they disclose to the public due to the fact that competitors could access it easily.
In addition, qualitative factors can be equally important in business decision-making as quantitative factors. And, the published Final Accounts show the historical financial position of a firm which does not necessarily indicate of current or future performance.
In a nutshell, information that does not have to be published in a company’s published annual reports includes the following information regarding business functions specifically:
1. Business Organization:
- The performance in terms of productivity as well as the effectiveness of each business function, division and department.
- The precise future expansion plans.
2. Finance:
- Current budgets.
- Any financial plans for the future.
- Quality of the profit being recorded. Whether low-quality one-off profit that cannot be repeated or sustained, or high-quality profit made from developing, producing and selling products which are likely to be a continuous source of revenue in the future.
3. Marketing:
- Details of the sales volume and value of each product sold by the company to customers, each product’s profitability, etc.
- Research and Development (R&D) plans of proposed new products.
- Names and details of the company’s major customers.
4. Human Resources (HR):
- Names and personal details of employees or each individual shareholder.
- The knowledge, abilities and skills of the workforce.
- Levels of loyalty and motivation of staff.
- Historical records of Labor Turnover rates.
- Organizational culture.
5. Production / Operations:
- Names and details of the company’s major suppliers.
- Stock levels and how inventories are being valued.
- The impact of the production process on the local community.
- Any evidence of negative impact on the natural environment.
6. Strategy:
- Any information whatsoever about the current and future business’s strategy in relation to either business growth or rationalization.
- Comparison of the firm’s performance to benchmark with rivals in the same industry.
Everything considered, only the internal management of the business including the CEO, directors of various business functions and higher-level managers will have access to all past accounting records and future plans. These records will be presented in a much-detailed way by the firm’s accountants, but privately.
Additional information included in published Final Accounts
Apart from the three main accounting documents included in the annual reports, other information is also required by law to be included in company published Final Accounts. Here are some of the most important additional sections that will also be included for the stakeholders to access:
1. The Chairman’s Statement
This first part focuses on the major achievements of the company in the past year, the short-term and long-term future prospects of the business as well as the impact of the external environment on the firm.
2. The CEO’s Report
In addition, this part includes the detailed analysis of the last fiscal year from the operational point of view. It will summarize how different business functions and divisions have performed in relation to the overall business strategy.
3. The Notes to Accounts
Next, this part contains precise details shedding more light to put the numbers in the main Final Accounts into wider perspective. It will provide more information, for example, on different types of Fixed Assets owned by the firm, descriptions of any Intangible Assets in Balance Sheet, the depreciation method used, details regarding types of long-term debt, etc.
4. The Auditing Company’ Report
Finally, this part is the report made by an independent consulting firm attesting the accuracy of the accounts and the validity of the accounting methods used. The auditors will state that the business’s Final Accounts are true and fair. Any real concerns raised by the accounting auditors regarding information and data will also be raised in this part.
In summary, it must be remembered that companies will only release to the public the absolute minimum of accounting information as required by the law. Although, other types of unincorporated businesses, such as sole traders and partnership, do not have to disclose any information at all to the general public, but may be asked to provide accounts to their bankers and the TAX authorities for auditing purposes.
What is more, company directors obviously wish to avoid sensitive information falling into the hands of competitors or even pressure groups which could take actions against the business.
Consequently, obtaining a copy of the published accounts of a public limited company will allow you to see how much disclosure is required by the law – and, just as importantly, what is not required by the law.
