- 15 Marks
Question
Corporate reporting by listed companies in Nigeria is evidenced by the annual report, defined as a comprehensive report on a company’s activities throughout the preceding year.
The directors of Mugono Plc would like to understand the content of an annual report but are unsure about the difference between mandatory and voluntary disclosures within the report.
Required:
Write a report to the directors of Mugono Plc:
- Highlighting the components included in an annual report.
(4 Marks) - Showing the following:
- i. THREE advantages of mandatory disclosures in the annual report (3 Marks)
- ii. FOUR advantages of voluntary disclosures in the annual report (4 Marks)
- iii. TWO limitations of information provided on a voluntary basis (2 Marks)
(For clarity in presentation)
(2 Marks)
Total: 15 Marks
Answer
To: The Directors,
Mugono Plc
Subject: Components and Disclosures in the Annual Report
(a) Components of an Annual Report
The primary components included in an annual report are:
- Mandatory Disclosure Reports:
- Statement of Financial Position
- Statement of Comprehensive Income
- Statement of Changes in Equity
- Statement of Cash Flows
- Notes to Financial Statements, including accounting policies and explanations
- Directors’ Report
- Independent Auditor’s Report
- Voluntary Disclosure Reports:
- Audit Committee Report
- Corporate Social Responsibility (CSR) Report
- Business Activities Overview for the year
- Chairman’s Report
- Corporate Governance Report
- Sustainability/Environmental Report
- Financial Summary
(b) Advantages and Limitations of Disclosures
i. Advantages of Mandatory Disclosures
- Provides essential information for stakeholders’ decision-making.
- Enhances transparency in the company’s financial position at the reporting date.
- Improves communication with stakeholders and builds a positive corporate image.
ii. Advantages of Voluntary Disclosures
- Protects the company against litigation related to information concealment.
- Provides investors with detailed data for assessing investment viability.
- Enhances market fluidity and capital allocation efficiency, potentially reducing average costs.
- Offers a comprehensive view of the company’s future performance and CSR engagement.
iii. Limitations of Voluntary Information
- Companies can selectively disclose information, potentially leaving out negative details.
- Information may be overly positive, presenting a biased view to influence investor perception.
We hope this report clarifies the content and implications of disclosures in your annual report.
Yours faithfully,
Financial Consultant
- Topic: Regulatory Environment for Corporate Reporting
- Series: NOV 2017
- Uploader: Dotse