Interim Financial Reporting [IAS 34]

Interim financial report is a financial report that contains either a complete or condensed set of financial statements for an interim period. And interim period is a financial reporting period shorter than a full financial year. How are form and content of interim financial reports? What to be included on the explanatory notes of interim financial report? When and how financial measured for interim reporting? What to disclose to be compliance with International Financial Reporting Standard [IFRS]? What period information to be presented on interim financial statements? This post answers those questions. It is illustrated with case example for better understanding, adapted from IAS 34. The purpose of IAS 34, Interim Financial Reporting, is to set out the minimum content of such a report and to describe the recognition and measurement principles in interim financial statements. IAS 34 does not detail which entities should publish interim financial reports, how frequently they should be published, or how soon they should be published after the end of the interim period. The Standard applies where an entity is required or elects to publish an interim financial report. The International Accounting Standards Board (IASB) encourages publicly traded entities to provide such reports at least at the end of the half year, and such reports are to be made available not later than 60 days after the end of the interim period.

An entity that does not prepare interim financial reports or provides ones that do not comply with IAS 34, does not compromise its compliance with International Financial Reporting Standards (IFRS) in its annual financial statements.
What Are Form And Content Of Interim Reports? IAS 34 defines the minimum content of an interim financial report as including condensed financial statements and selected explanatory notes. It does not detail the information that should be included in these condensed financial statements. An entity should determine the level of detail and ensure that the condensed financial statements can be compared with the previous annual financial statements. The interim financial report should provide an update on the latest financial statements. The minimum elements specified for an interim financial report are a: 1. Condensed balance sheet 2. Condensed income statement 3. Condensed statement of changes in equity 4. Condensed cash flow statement 5. Selected explanatory notes

If an entity issues a complete set of financial statements in the interim report, those financial statements should comply with IAS 1. If the entity publishes interim financial statements that are condensed, then they should include, as a minimum, the headings and subtotals included in the most recent annual financial statements and the explanatory notes as required by IAS 34. Additional line items or notes should be included if omitting them would make the interim financial statements misleading.

Basic and diluted earnings per share should be presented on the face of the income statement.
If the entitys most recent annual financial statements are prepared on a consolidated basis, the interim financial report should be prepared on the same basis.

Explanatory Notes On Interim Financial Statement The explanatory notes are designed to provide an explanation of significant events and transactions arising since the last annual financial statements. IAS 34 assumes that readers of an entitys interim report will also have access to its most recent annual report. As a result, IAS 34 prevents the repetition of annual disclosures in interim reports. IAS 34, paragraph 16, sets out a long list of disclosures including: 1. Accounting policy changes 2. Seasonality or cyclicality of operations 3. Unusual items and changes in estimates 4. Dividends paid and material events after the end of the interim period 5. Changes in the structure of the entity including business combinations and restructurings 6. Segment revenue and result 7. Changes in contingent liabilities or assets since the last annual balance sheet date 8. Issue, repurchase, and repayment of debt and equity

Disclosure Of Compliance With IFRS If the entitys interim financial report is in compliance with IAS 34, that fact should be disclosed.

An interim financial report should not claim compliance with IFRS generally unless it complies with all applicable International Financial Reporting Standards and interpretations of the International Financial Reporting Interpretations Committee (IFRIC).

Periods Information To Be Presented By Interim Financial Statements 1. 2. IAS 34 requires the following information to be presented: Balance sheet as of the end of the current interim period and a comparative balance sheet as of the end of the preceding financial year Income statements for the current interim period and for the current financial year to date, with comparative income statements for the comparable interim periods (current and year-to-date) of the preceding financial year. Statement showing changes in equity for the current financial year to date, with a comparative statement for the comparable year-to-date period of the preceding financial year. Cash flow statement for the current financial year to date, with a comparative statement for the comparable year-to-date period of the preceding financial year. To sum-up: IAS 34 recognizes the usefulness of additional information if the business is seasonal by encouraging for those businesses the disclosure of financial information for the latest 12 months, and comparative information for the prior 12-month period, in addition to the interim period financial statements. Measurement For Interim Reporting Measurements for interim reporting purposes should be made on a year-to-date basis, so that the frequency of the entitys reporting should not affect the measurement of its annual results. The same definitions and recognition criteria apply whether dealing with interim or annual financial reports.

3. 4.

IAS 34 requires the entity to consider these points: Revenues that are received seasonally, cyclically, or occasionally within a financial year should not be treated differently from in the annual financial statements. Costs and expenses are recognized as incurred and are not treated differently in the annual financial statements. Income tax expenses should be recognized based on the best estimate of the weighted average annual income tax rate expected for the full financial year. It is recognized that the preparation of interim reports will often require the greater use of estimates.

Sundry Points The materiality of items is to be assessed in relation to the interim period financial data with the main aim being to include all information relevant to the entitys financial position and performance during that period. The same accounting policies should be applied for interim reporting as are applied in the entitys annual financial statements. An entity should use the same accounting policy throughout a single financial year. Where a new accounting policy is adopted in an interim period, that policy should be applied and previously reported interim data is restated in accordance with IAS 8.

If an estimate of an amount reported in an interim period is changed significantly during the final interim period of the financial year but a separate financial report is not published for that period, the nature and amount of that change must be disclosed in the notes to the annual financial statements.
Interim Financial Reporting Case Example Lie Company, an entity publicly quoted on a stock exchange, owns 15% of the equity capital of Dharma Company. This equity investment is classified as available for sale under IAS 39. The year-end of Lie Company is December 31, 20X8, and an interim report has been preparedat June 30, 20X8, using IAS 34. At January 1, 20X8, the fair value of the investment in Dharma Company was $2 million. The investment in Dharma was deemed to be impaired at June 30, 20X8, and an impairment loss of $500,000 was determined at that date. However, at December 31, 20X8, the fair value of the investment in Dharma Company had risen to $2.3 million.

The question is: how the preceding transaction should be shown in the financial statements for the period to December 31, 20X8?
The financial asset should be reviewed for impairment at the date of the interim financial report, and therefore an impairment loss of $500,000 should be recognized in the income statement at that date. The increase in value of $800,000 from July 1, 20X8, to December 31, 20X8, should be taken to equity. If the entity had not prepared an interim report, then a gain of $300,000 would have been taken to equity at December 31, 20X8. It is the frequency of the preparation of the balance sheets that affects the annual results.