How to plan your annual report process

There are significant advantages to planning the annual report process well in advance. Both when it comes to optimising your resources, improving stakeholder management, and reducing any surprises by addressing specific risk areas early in the process. But how do you best plan the preparation of the annual report? This article will provide you with valuable insights.

The preparation of the annual report involves numerous stakeholders and resources. The process encompasses a range of tasks of a technical nature in Finance, involves other departments and, potentially, external consultants for communication, as well as considerations about when to involve relevant decision-makers.

A well-planned process can, therefore, be crucial for ensuring the most optimal use of resources. It provides your employees with a better framework for preparation, helps keep audit fees to a minimum, and makes internal communication to the company's stakeholders more credible.

Perhaps your company's activities, key personnel, accounting regulations, and timeline remain unchanged from last year, but these are not valid arguments for not revisiting last year's plan.

Management is the official issuer of the annual report, and therefore they are the key stakeholder of Finance's task preparing it. This particularly applies to the CFO, who has formal responsibility for the report's financial content. It is, therefore, important that you clarify expectations for the task as early as possible regarding time consumption, quality and support of the CFO's need to manage other stakeholders (particularly the CEO and the board of directors).

It is also important to incorporate the impact of more strategic considerations. Is there, for example, a need for voluntary changes in accounting policies or presentation currency, or should there be a full conversion to a different accounting framework (e.g. from the Danish Financial Statements Act to IFRS)?

The involvement of external advisers must also be coordinated early in the process, as this can have a significant impact on both timeline and resource consumption. A solid plan for collecting reporting packages from subsidiaries is also essential, as this is often an area where delays can threaten the overall timeline.

In Denmark, the annual report must be submitted to the Danish Business Authority no later than six months after the balance sheet date. For listed companies, the deadline is four months. In addition to the legislative requirements, it is important to define internal deadlines for each phase of the annual report process, from the completion of bookkeeping to the signatures of management and auditor.

Here, it is important that you create an overview of each component in the process, after which you can estimate the need for resources. To identify any gaps in the resources needed, it can be beneficial to work backwards from the desired deadlines.

You need to consider both external and internal deadlines, as otherwise you will not be able to assess how they align with each other. Furthermore, it is essential to distinguish between deadlines derived from stakeholders and deadlines derived from the parties involved in executing the actual work associated with the annual report, which will typically be finance, marketing, ESG specialists and subsidiaries.

In the timeline, you can get an overview of the stakeholder deadlines you need to be aware of - both external and internal:

While the above deadlines in the timeline rarely cause challenges, the operational deadlines often prove problematic to meet. This may be due to underestimating the time aspect, where for instance the execution itself, the review and the follow-up take longer than calculated, or because the preparation of the template and general layout of the annual report should have been outsourced.

It might also be that the plan has not been detailed enough, which has led to unnecessary surprises coming in from the side. Finally, there may have been a lack of general alignment of expectations, which has thus created misunderstandings that needed to be resolved at the last minute.

Based on the breakdown of the annual report elements, responsible persons must be allocated for both execution and approval, and an estimate of time consumption must be prepared. In connection with this, a thorough alignment of expectations must be conducted with each individual person regarding what they are to perform and what output it should lead to.

It may be a good idea to start by reviewing last year's process. This way, you can ensure that mistakes from the previous year are not repeated. In practice, this is best achieved through a thorough evaluation process where all parties involved in the annual report process are gathered.

We recommend that all involved parties have a voice in the evaluation, including finance, management and external stakeholders such as auditors, as the project manager never has the complete overview and may therefore lack important details about why a deadline might have been missed. The goal is to identify the elements that created delays or problems and ensure that these are handled better next time. A structured agenda for the evaluation meeting can be beneficial to ensure that all necessary topics are discussed.

The Danish Financial Statements Act regulates all commercial enterprises regardless of legal form or size. It is structured around a so-called 'building block model' that defines which financial reporting rules a company is subject to. Depending on the size of your company, you fall under one of the four accounting classes A, B, C or D. Which accounting class you belong to depends on the calculation of statutory size limits based on net revenue, balance sheet total and average number of employees.

The key point here is to consider whether you are exposed to a change in accounting class compared to last year, including consideration of whether there have been any legislative changes. It is important to note that the size limits for all accounting classes have just been increased by approx. 25 per cent effective for annual reports approved after 1 June 2024. In practice, this means that if you have not yet submitted your 2023 annual report at the time of the act's adoption, you will be able to apply the new size limits. This requires that you have been below two of the three new size limits for two consecutive years, which would in this situation be the financial years 2022 and 2023.

If you report under IFRS (voluntarily or as required), it is important to be aware that you are also subject to compliance with the IFRS Executive Order, which contains supplementary disclosure provisions.

The requirements for the management report depend on your company's accounting class. The Danish Financial Statements Act's provisions also apply if you report under IFRS, as IFRS does not require a management report as a separate part of the annual report.

The current disclosure requirements mainly focus on describing the company's principal activities, the year's development compared to last year, and expectations for the coming year. These requirements are considered relatively uncomplicated and resemble a summary of internal reporting. However, it is essential to address the corporate social responsibility requirements well in advance. These include your company's environmental position, including efforts to reduce climate impact, as well as social conditions, working conditions, human rights, and anti-corruption and anti-bribery measures. Central to this is how you integrate corporate social responsibility into your business strategy, whether you have a policy for corporate social responsibility, and how this translates into concrete actions.

It is particularly important to be prepared for the future corporate social responsibility requirements, as the current rules will be replaced by more comprehensive and complex requirements in the EU Corporate Sustainability Reporting Directive (CSRD) by January 2026. The CSRD establishes the framework for sustainability reporting, while the associated European Sustainability Reporting Standards (ESRS) specify the disclosure requirements. Not only may your company become subject to and need to address these requirements, but sustainability reporting will also be a focus area for suppliers, customers, and other stakeholders. Therefore, it may be worth considering voluntary reporting of the future requirements - in whole or in part - as part of your strategic preparation.

It is important to estimate the necessary resource requirements as early as possible to identify any gaps in the available resources within the company. Should additional resources be needed, it is crucial to avoid hasty conclusions, such as a quick decision about temporary or permanent reinforcement in the finance department. While it may indeed become necessary to bring in external assistance or adjust deadlines, a more proactive approach often yields better results.

By planning earlier in the year, you can create a smoother year-end process. The timeline often slips not due to a lack of resources, but due to unforeseen challenges, where unresolved risk areas prove time-consuming and can lead to subsequent adjustments that negatively impact the year's financial results. An effective solution can be a hard close audit that identifies and addresses critical risk areas and significant accounting estimates well in advance, creating optimal conditions for efficient year-end closing and annual reporting.