Structure and contents of annual reports

As we have seen, the annual report can range from a compulsory exercise required by law to an elaborate public-relations instrument. Moreover, its intended recipient groups are many and heterogeneous. Above all, companies can pursue widely differing

Wr. Stadtwerke (Vienna Public Utilities) basic version

Figure 10.3: Wr. Stadtwerke (Vienna Public Utilities) basic version8

Wr. Stadtwerke (Vienna Public Utilities) elaborated version

Figure 10.4: Wr. Stadtwerke (Vienna Public Utilities) elaborated version9

objectives by publishing such documents. So it is no surprise that their structure and contents (and consequently their formal characteristics; see Section 5) are equally diverse (see Figures 10.3 and 10.4, which show a rudimentary annual report for the general public and the cover of its elaborate equivalent consisting of 84 pages).

However, if extreme cases are disregarded, the annual reports of large, listed companies - those that are predominantly dealt with in the literature and best correspond to the general notion of such publications - display a typical structure. Its essential characteristics can be described using the example of one of the world’s biggest companies (in turnover terms), viz. British Petroleum (BP) (see Figure 10.5).

BP - Contents

Figure 10.5: BP - Contents10

Following the cover and inside cover, the BP annual report starts with a section titled “Information about this report” (without page details). This is a type of lead paragraph which sets out the report’s legal basis, explains changes to relevant 10

(accessed 17 Sept 2014).

regulations and gives an overview of the report’s layout. Furthermore, this section provides basic information about the company (headquarters, group structure, stock market valuation, shares), as well as a list of abbreviations. The main sections of the report follow this introductory information: “Strategic report”, “Corporate governance”, “Financial statements”, “Additional disclosures”, and “Shareholder information”. In the one-page section “Cross reference to form 20F”, the report’s contents are presented in a format specifically required for the listing of shares on US markets.

The strategic report describes the company in general, positions it in its environment and reflects the opinion of the company’s management team on future developments. As reflected in the table of contents in the BP report, this section rarely consists of a single, coherent text. More usually, it is an accumulation of different subtexts ranging from a presentation of the company’s activities and business areas (“BP at a glance”), to graphics showing key company figures (“Our key performance indicators”) and statements regarding risk management (“Our management of risk”). Other aspects often included in this section of annual reports are: details of the company’s (or group’s) structure; a list of its major shareholders; the geographical distribution of its activities (production sites, sales outlets); an organigram; and a presentation of the product range.

What is striking in the example text is the relatively limited space given to corporate social responsibility and sustainability, as compared to other annual reports. This fact, surprising for an energy company, is explained by the existence of a separate “Sustainability review”, which can be seen as a kind of parallel publication to the annual report in terms of its graphic design and many sections of its content. Its separate nature is explicitly emphasised (“BP annual report and form 20-F 2013 and the BP strategic report 2013 may be downloaded from No material in this Sustainability Review forms any part of those documents.” (inside cover[1])), whereas other companies most definitely treat this subject in the annual report itself.

Central to this narrative section is the letter from the chairman (or CEO) to the shareholders. This element has certainly attracted the most interest thus far from a linguistic perspective (Vogel 2012: 89-90). It is presumably also the most read, especially by those readers who lack the expertise required to follow other sections of the report and prefer a distilled presentation of the most important information in letter form (Garzone 2004: 321). The letter’s communicative functions are broadly similar to those already identified for the annual report as a whole: to provide readers with information and to generate a positive relationship with them. Each function may be more or less explicit and emphasised, but both are always present. The main target group is the shareholders (it is not accidental that this part of the text is referred to in German as Aktionarsbrief [letter to the shareholders]). However, it is also directed at employees and customers, in other words at the company’s key stakeholders (Rudolf 2011: 21). Thanks are expressed to these two groups for their commitment and trust, while the performance and positioning of the company is explained in the current business environment. Many companies also use this opportunity to highlight their social role and what they regard as their “responsible activities”. Of greater interest to the shareholders and potential investors will be a summary of the most important data and results, of the company’s strengths and weaknesses in the past financial year, of the management’s strategy at the time of writing and an indication of the profitability of their investments (though important cultural differences have been found to exist in this regard; cf. Schnitzer 2013a).

From the company’s point of view, however, the most important goals are to build trust in the firm and to give it a positive image, without raising unrealistic expectations and avoiding longer-term disappointment (Rudolf 2011: 21). If the financial year has not gone to plan, the report will (wherever possible) ascribe this to external circumstances or unexpected events, while stating that, in any case, the situation is under control. In this way, it conveys reassurance and reinforces trust (Rudolf 2011: 22). This strategy appears to work; investors seem to regard precisely the non-financial elements of the annual report, such as the Chairman’s letter to the shareholders, as critical to long-term investments (Nickerson and de Groot 2005: 328). That is surprising, given that they are fully aware that, in reality, the letter comes not from the signatory but, at least in more elaborate reports, from a public relations department or agency (Reinmuth 2011: 44-45). These authors naturally draw on every rhetorical register to deliver a convincing message to readers. Again, the challenge is to reconcile different and potentially conflicting functions and requirements, and to satisfy target groups with different expectations and requirements, always without appearing formulaic (Schmidt 2008: 321). It is therefore only to be expected that letters to shareholders can vary widely from a formal perspective, as is manifest in their different lengths and internal structures (subheadings, etc.) (Garzone 2004: 321-322).

In the BP report, the first section is followed by one on corporate-governance. It presents the board and the directors (in many annual reports this is done in the first section), describing their positions and functions along with their responsibilities, before listing their remunerations and shareholdings in the “Directors’ remuneration report”. The corporate-governance report is a relatively recent part of annual reports and has been incrementally introduced by listed companies in individual countries following the first edition of the OECD’s guidelines (Principles of Corporate Governance) in 1999.

Finally, the financial statements form that part of the annual report subject worldwide to the strictest regulations. Besides long-existing national rules designed to protect ownership rights in public limited companies, there are now also international standards (International Financial Reporting Standards and International Accounting Standards). These have been compulsory for the consolidated financial statements of listed companies in the member states of the European Union since 2005, and may be adopted by other companies. According to the Official Journal of the European Union, a complete set of financial statements comprises:[2]

  • (a) a statement of financial position as at the end of the period;
  • (b) a statement of comprehensive income for the period;
  • (c) a statement of changes in equity for the period;
  • (d) a statement of cash flows for the period;
  • (e) notes, comprising a summary of significant accounting policies and other explanatory information; and
  • (f) a statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements.

The “statement of financial position” corresponds to what was previously known as the “balance sheet”. It presents the company’s total assets and the means by which these have been financed, either by its own capital (equity) or by borrowings (liabilities). The “statement of comprehensive income” is the former “income statement”, with the addition of a few new items. It shows the company’s profit or loss and the various activities from which this derived (operational activity, financial activity, extraordinary events). The “statement of changes in equity” shows how the equity has changed over the year as a result of the company’s performance, and of capital inflows or outflows. The “statement of cash flows” lists the cash flowing into and out of the company to illustrate its liquidity. What all these documents have in common is that their content and language are both highly technical in nature (Ditlevsen 2006: 63), making them largely inaccessible without specialist knowledge.

The same applies to the next section (“Notes”), which is also a compulsory part of the annual report. It is much longer than the documents mentioned thus far, which consist of relatively small tables and, if especially detailed or elaborately laid-out, may cover at most one or two A4 pages (companies have a relatively large amount of freedom in the level of detail in which such documents are set out). In fact, the harmless term notes usually conceals an explanation, frequently covering numerous pages, of how the figures set out in the earlier documents should be read and how they were arrived at. This section therefore includes details of assessment and calculation methods, along with breakdowns of the aggregated figures.

The fact that two different sets of “financial statements” are listed in the contents is the result of BP’s dual status as a group of companies and the parent company of that group. The first set contains the consolidated financial statements relating to the BP group in its entirety (“Consolidated financial statements of the BP group”). The second includes the financial statements of the parent company as a separate entity (“Parent company financial statements of BP plc”). This structure is characteristic of companies/groups of BP’s size.

A key legal element of financial statements is the “Independent auditor’s report”, in which an independent accountant reaches an opinion on whether the relevant accounting standards have been met. This, too, involves largely standardised text with formulaic expressions that exhibit little variation. However, together with the Chairman’s (or CEO’s) letter(s), it is the only text in the annual report whose author is explicitly identified.

In the section following the financial statements (“Additional disclosures”), BP provides further information on the production and financial activities of the company, which is of interest for a wide variety of reasons. A final section is explicitly tailored to the interests of shareholders (“Shareholder information”), and informs them on their rights and obligations, as well as the implementation/enforcement of these.

  • [1]
  • [2] (accessed 17Sept 2014).
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