Why Private and Public Companies Treat Annual Reports Differently - dummies

Why Private and Public Companies Treat Annual Reports Differently

By Kenneth Boyd, Lita Epstein, Mark P. Holtzman, Frimette Kass-Shraibman, Maire Loughran, Vijay S. Sampath, John A. Tracy, Tage C. Tracy, Jill Gilbert Welytok

A corporate annual report (which may also be called the annual report or the annual report to shareholders) may look different depending on whether the company in question is private or public.

The corporate annual report for a private company — one whose stock isn’t traded on the open market — is usually a bare-bones document that gives users just the mandatory information about how the company performed in the past year. You don’t find many bells and whistles in a private company’s report.

That’s because most private companies are closely held (they have a small number of owners), so they aren’t too concerned about how a larger audience will react to the report. On the other hand, a public company’s report is often loaded with bells and whistles, such as marketing material designed to tout the company to potential investors and creditors.

Another key difference between the annual reports of private and public companies is that private companies don’t always have their financial statements audited, while public companies do. A private company usually has its financial statements audited only if doing so is required to fulfill a business purpose. (Perhaps a creditor or an insurer providing bonding — compensation to customers in case the company doesn’t fulfill its obligations — requires an audit.)

Public companies’ financial statements must always be audited in order to fulfill regulatory requirements. What does it mean for the statements to be audited? After the company creates the statements, it employs an independent certified public accountant (CPA) to gather sufficient information to express an opinion on whether the statements are materially correct. (In other words, they don’t contain any misstatements that could significantly impact the decisions made by the financial statement users.)

Only after a public company’s financial statements are audited can they be included in the company’s annual report to the shareholders.

You can access the corporate annual report for just about any publicly traded corporation online. Go to the home page of any company in which you have an interest. Look for an “Investor” link on the home page, and click it. Voilà! Chances are you’re looking at the annual report.

If you can’t easily find the “Investor” link, don’t spin your wheels. Just search the web by using the key phrase “[Company name] corporate annual report.” You’ll likely locate it easily.