This Guide has the aim of improving the process for using annual reports as a key oversight tool. Annual reports are the key reporting instruments for departments to report against the performance targets and budgets outlined in their strategic plans, read together with the ENE (for national sphere) and Budget Statement Two (for the provincial sphere). Annual reports are therefore required to contain information on service delivery, in addition to financial statements and the audit report. It is meant to be backward-looking document, focusing on performance in the financial year that has just ended. It reports on how the budget for that financial year was implemented. It is envisaged that legislatures will develop a process for overseeing annual reports similar to the process for considering the budget, particularly the second reading process. Ideally all portfolio committees should consider the respective department's annual reports soon after their tabling so to assess the performance of departments in the past financial year. The challenge facing portfolio committees is that they need to ensure that departments provide good quality service delivery information in their strategic plans with tight performance targets and then to ensure that departments report against those targets in their annual reports.