Question

Mandatory reporting in the form of the annual report with audited financial statements has been used by incorporated entities since the mid 19th century. Discuss if this mode of reporting is still relevant in modern times and can this be substituted by quarterly or semi-annual reports (on an audited basis). Discuss why these alternatives may be possible today and why they have not been incorporated as requirements by the standard-setters.

Answer 1

Mandatory reporting in the form of annual report with audited financial statements is still relevant is the practice in modern times used by unlisted companies the world over. This is still relevant in modern times because the stakeholders get an overall view of the company's performance for the whole year in a consolidated format, which is important for the stakeholders to make a decision whether to keep their investments or to sell them. For creditors, suppliers etc, the annual statements of the company is an indication that they can do business with the company and they are sure of the company's creditworthiness.

For listed companies, the mandate is that they have to present their quarterly or semi - annual reports regularly because their shares are traded and the stock exchanges,shareholders, investors etc need to be aware of the company's activities, profitability, internal state of affairs etc.

For unlisted companies the annual reports are the best suited because the annually the stakeholders get to know the state of affairs of such companies and as for the listed companies, quarterly and semi-annual reports are better. The change of quarterly & semi-annual reporting being made compulsory for all types of companies isn't feasible and doesn't make any sense because the purpose of both listed and unlisted companies sharing their financials is different. Hence, their reporting frequencies should not be changed.