Accounting Information Systems 15th Global Edition by Marshall B. Romney Solution manual

 
Users hold conflicting views on the value of annual reports. Some argue that they fail to provide enough information, whereas others believe disclosures in annual reports have expanded to the point where they create information overload. Others argue that the future of most companies depends on acceptance by the investing public and by its customers; therefore, companies should take this opportunity to communicate well-defined corporate strategies.       Adapted from the CMA Examination
 
a.   Identify and discuss the basic factors of communication that must be considered in the presentation of the annual report.</para></listitem>
 
The annual report is a one-way communication device.  This requires an emphasis on clarity and conciseness because there is no immediate feedback from the readers as to what messages they are receiving.
 
The preparer must attempt to identify the users/audience of the report, and to determine their values, beliefs, and needs.  Then the preparer can determine the language, i.e., words and phrases that would be appropriate and familiar to the users/audience.
 
The preparer must also consider the organization of the material in the report.  Logical ordering and attractive formatting facilitate the transmission of ideas.
 
b.   Discuss the communication problems a corporation faces in preparing the annual report that result from the diversity of the users.
 
</para></listitem>The different users of annual reports have differing information needs, backgrounds, and abilities.  For some users, the annual report may serve as an introduction to the company and/or the only significant information about the company.  By using the report to communicate to all users, the problems the corporation faces include the following.
 
In an attempt to reach several audiences, a company may include information for each audience.  Consequently, the annual report may grow in size and complexity to the point where it contains more information than many users want to receive or are able to comprehend, i.e., information overload.  In some cases, technical concepts may be reduced to concepts that are more common; this reduces precision and conciseness thereby leading to more generalizations.
 
Care must be taken in the presentation of information.  Words and phrases familiar to one user group may not be understood by those in other user groups.  Graphic displays that are meaningful to some may be meaningless to others. 
 
c.   Select two types of information found in an annual report, other than the financial statements and accompanying footnotes, and describe how they are helpful to the users of annual reports.
 
</para></listitem>Other than the financial statements and accompanying footnotes, an annual report provides information concerning
 
Management's discussion and analysis of results.
Organizational objectives, strategies, and management's outlook for the future.
Board of Directors members and the officers and top management of the organization.
Segment data and performance information.
New initiatives and research information.
Recent stock price history and stock information.
 
Students will have many and varied answers as to how the information is helpful, which should lead to a rich class discussion.  This discussion can be combined with the discussion of part e.
 
d.   </inst>Discuss at least two advantages and two disadvantages of stating well-defined corporate strategies in the annual report.</para></listitem>
 
Stating well-defined corporate strategies in a company's annual report accomplishes the following:
Advantages:
Communicates the company's plan for the future and resolves any disparate issues.
Provides a vehicle for communicating the company's strengths.
Builds investor confidence and portrays a positive image.
Disadvantages:
Locks management into fulfilling stated objectives and strategies, causing inflexibility.
Communicates to unintended users who could put the company at risk (i.e., competitors).
 
e.   Evaluate the effectiveness of annual reports in fulfilling the information needs of the following current and potential users: shareholders, c</para></listitem>reditors</para></listitem>, <listitem><para><inst></inst>employees</para></listitem>, c<ustomers, and f</para></listitem>inancial analysts</para></listitem></orderedlist></listitem>
 
      Annual reports fulfill users' information needs as discussed below.