Look Sharp! What's Hot In This Year's Annual Reports: If bad news is best delivered first and in the greatest detail, then this must be 10-K season. There’s bad news aplenty out there in the market, and now an up-close-and -micro version of it is landing on your desk and seeping into your e-mail box. Yes, it’s that time of year again.
This is the twelfth Accounting Observer heads-up on what to seek in the current batch of annual reports. Easy prediction: this year’s annual reports are going to be thicker than ever. Preparers and auditors ought to be erring on the side of caution and putting out more disclosure than ever, as reporting risks are magnified by the credit crisis. The exercise for investors remains the same: you get out of it what you put into it. There’s no single magic disclosure or ratio that’s going to save you the kind of investment agony experienced in 2008 (and so far in 2009, too.) Reading the annual reports well enough to understand the risks involved might scare the dickens out of you - but it might also lead you to the right kind of investment decisions.
Get the most out of the annual reports: have a plan. Don’t just expect“something important” to smack you in the face if you blaze through them - figure out what’s most important first, then search for it as you read the whole thing. Be aware of how the current environment affects the company; and look for information in the accounting that either supports or contradicts what you expect. Fire up a pot of coffee, and let’s get going.