The management report is the most underrated part of the annual report – yet it is exactly this section that shapes the reader’s first impression of your company. Many managers see the management report as a mandatory add-on, but in reality, it is at least as important as the balance sheet or income statement. It is through the management report that a bank, partner, investor or other stakeholder forms an initial view of the company’s management, current position and future outlook.
Five practical steps to make your company’s management report more valuable and ensure better compliance with the Commercial Code:
- Describe what your company actually does.
Overly generic descriptions leave the reader guessing. Clearly state your core activities and main product or service groups.
- Explain what influenced the financial year.
The reader expects practical examples: changes in prices or demand, weather impacts, or other significant factors.
- Highlight the investments made.
Briefly describe what the company invested in and why. This shows development priorities and long-term thinking.
- Do not hesitate to briefly outline near-term plans.
This demonstrates that the company operates with clear intent and strategy, reinforces sustainability, and shows stakeholders a willingness to grow.
- Include three to five simple financial ratios.
Ratios help the reader quickly understand the figures in the annual report and assess the company’s financial position.
What is usually left out?
When preparing a management report, it is important to ensure compliance with disclosure requirements set out in §24 of the Accounting Act.
Most often, companies fail to disclose information about research and development projects and the related expenses for the reporting year and future periods. If no such expenses were incurred during the reporting year and none are planned for the following year, this should be explicitly stated, as this is the only way to meet the legal disclosure requirement. In addition, companies often omit information about the seasonality or cyclicality of business activities, as well as risks related to changes in exchange rates, interest rates and stock market prices. If these are not relevant, this should also be clearly stated in the management report.
If equity does not meet the requirements set out in the Commercial Code or if current assets are lower than current liabilities, this information must be disclosed in the management report. It is also important to explain what actions are planned to improve liquidity and restore equity, both in the reporting year and in the future. Auditors have also encountered situations where a company has acquired or accepted its own shares as collateral during the financial year, but this has not been disclosed in the management report.
AI assistants help ensure compliance with disclosure requirements
Before finalising the management report, review all mandatory disclosure points set out in the Accounting Act. If any of these do not apply to your company, state this explicitly. This ensures that all required disclosures have been addressed.
Also keep in mind that if your company is subject to a statutory audit, additional disclosure requirements apply under the Accounting Act and must be included in the management report. Before submitting the report, it is advisable to review all legal disclosure requirements. To support this, Grant Thornton Baltic has developed AI assistants that help quickly identify potential gaps in the report and answer questions related to Estonian financial reporting standards.
Estonian financial reporting assistant
Annual report disclosure checklist assistant
Will you make your next management report clearer and more impactful?
