IAS 34 - Interim Financial Reporting (detailed review)

Objective

This standard prescribes the guidelines for an entity regarding the preparation of interim financial statements by providing information about the minimum contents of interim financial reports along with the recognition and measurement principles for such financial reports. These interim financial reports will provide the most recent activities, circumstances and financial affairs of the reporting entity

Scope

This standard does not define, which entity is required to publish the interim financial reports, the time period after the end of interim period within which these financial reports should be published and how frequently these should be published.

• However, International Accounting Standard Committee encourages that the entities whose instruments are publically traded should publish its interim financial reports at least once within 60 days, from the end of its first half of financial year

• The requirements of this standard are applicable only, if an entity chooses to publish its financial reports in accordance with IFRS

• The annual financial statements of the entity is required to be essentially in compliance with all the IFRSs, either it does not prepare its interim financial reports or prepares its interim financial reports which are not in compliance with IFRS,

Definitions

Interim Period

It is the financial reporting period which is lesser than the full financial year

Interim Financial Reports

It encompasses either a complete set of financial reports as defined in IAS 1 or set of condensed financial reports as defined in this standard, for the specified interim period

Contents of Interim Financial Reports

The interim financial reports may have the following contents as per the requirements of IAS 1 Presentation of Financial Statements:

• Statement of profit or loss and other comprehensive income for the period
• Statement of financial position as at the end of the period
• Statement of changes in equity for the period
• Statement of cash flows for the period
• Notes to accounts
• Comparative year information
• Opening Statement of financial position in respect of retrospective application or restatement of a change in accounting policy or error, or when entity first adopts the IFRSs 

However, an entity may chose to publish the interim financial reports in the form of condensed financial reports, which contain the less information than the annual financial statements and selective explanatory notes, to minimize the repetition of the financial information, which is already presented in the last annual financial statement and cost impacts. This standard also defines the minimum contents of such condensed financial reports

Minimum Contents of Interim Condensed Financial Reports

The following are the minimum contents of interim condensed financial reports, which include:

• Condensed statement of profit or loss and other comprehensive income for the period
• Condensed statement of financial position as at the end of the period
• Condensed statement of changes in equity for the period
• Condensed statement of cash flows for the period
• Selective notes to accounts

Form and Contents of Interim Financial Reports

• If the entity chooses to prepare the interim financial reports in the form of complete set of financial statements as defined in IAS 1 Presentation of Financial Statements, then the structure and contents of such interim financial reports will be in accordance with IAS 1

• If the entity chooses to present the interim financial reports in the form of condensed financial reports, then such condensed financial reports should include at least the headings and sub-totals which were included in the most recent last annual financial reports along with selective disclosure requirements. The entity can include the additional line items in the condensed financial reports, if these are useful for the users of financial statements

• If the entity falls within the scope of IAS 33 Earnings per Share, then it is required to present the basic and diluted earnings per share for such interim period in the statement of profit or loss

• If the entity’s most recent annual financial reports include the both entity’s separate financial statements and consolidated financial statements, the entity is required to prepare interim financial reports on consolidated basis however, the entity has discretion regarding the inclusion of separate financial statements into interim financial reports

• The entity is required to disclose the information about the material events and transactions, which have taken place since the end of the last annual period to the current interim period, which may include the information about the following events, if these are material:

  - Any impairment loss
  - Any sale or purchase commitments
  - Any Related Part Transactions
  - Reduction in Net Realizable Value of Inventory
  - Any settlement of Provision
  - Any litigation against the entity
  - Any adjustment of error in the previous period

• The materiality of the information to be be disclosed in interim financial reports should be determined on the basis of interim period financial data

 

Disclosures

The interim financial reports should include the following:

• The statement indicating that accounting policies used in preparation of interim financial report are in line with the accounting policies used in most recent annual financial statements
• The details about any seasonal variations and its impact up on interim financial reports
• Any unusual events and their impact up on interim financial reports
• Details about any dividend declared since the end of last annual reporting period
• Any issue of debt or equity instruments and repayments (if any)
• Following information is required to be disclosed about the operating segment, if it is disclosed in the most recent annual financial statements:

  a) Internal and external revenue of the operating segment

  b) Net profit or loss of the operating segment

  c) Total assets and Liabilities of such segment

• Details about the events which arises after the end of previous annual reporting period
• Any changes in the structure of the entity such as business combination or investment in associate or joint venture
• Ant Changes in the status of investment held by the entity
• A statement indicating the compliance of interim financial reports with this standard

 

Reporting Period of Interim Financial Statements

The interim financial reports either complete set of financial statements as per IAS 1 or condensed financial reports should be presented for the following periods:

• The statement of financial position to the end of the current interim period along with a comparative statement of financial position at the end of previous most recent financial year

• The statements of profit or loss and other comprehensive income for the current interim period (year to date) along with a comparative statement of profit or loss and other comprehensive income for the comparable interim period

• The statement of changes in equity for the current interim period (year to date) along with a comparative statement of changes in equity for the comparable interim period

• The statement of cash flows for the current interim period (year to date) along with a comparative statement of cash flows for the comparable interim period

The entity whose profits are subject to high seasonal variations, is encouraged to publish financial reports for the 12 months to the end of the current interim period along with comparative information for the previous 12 months period in addition to its interim financial reports, to make financial information useful for the users of financial statements

Disclosure Required in Annual Financial Statement

If in certain circumstances, the accounting estimate of an amount changes in the final interim period of the reporting period, which is recognized in the earlier interim period of the same reporting period then the entity is required to provide disclosure of such change in accounting estimate in that reporting period, which may include estimates regarding reduction in NRV of inventory, impairment loss or provision

Recognition and Measurement in Interim Financial Statements

The entity is required to prepare the interim financial statements using the same accounting policies, which are used in the preparation and presentation of most recent annual financial statements of the entity, except for the change in accounting policy which has taken place after the end of most recent annual reporting period and will be applied in the current and subsequent accounting periods

• The entity will use the same recognition and measurement requirements of the IFRSs in the preparation and presentation of interim financial reports, which are used for the annual financial reports such as:

a) The recognition and measurement requirements in respect of impairment of asset, provisions and reduction in NRV of inventory will be the same as for used in annual financial statements

b) The costs which do not qualify for recognition as an asset at the end of interim period will not be capitalized in the statement of financial position to await the future outcome, instead it will be charged to statement profit or loss in relevant interim period

c) The Income tax expense and provision will be recognized in the interim financial reports, using the estimated income tax rate expected to be applicable to the whole annual accounting period and it may have to be adjusted in the subsequent interim period due to change in tax rates

• The measurement requirements of the IFRSs will remain the same for the annual financial statements, and these will not be affected by frequency of reporting (i.e. interim or quarterly financial reports)

• If an accounting estimate changes after the current interim period, for an amount which is recognized in the current interim period, it will be adjusted either by recognizing the additional amount or by reversing the amount recognized previously and incorporating the net effect.

• In case of seasonal variation in revenue, the entity should take into account only the amount of revenue in interim financial reports, which relates to such interim period and it should not recognize any other amount of revenue which relates to future or deferred any amount of revenue which relates to the current interim period

• The entity should ensure that measurement estimates are reasonable in the preparation of interim financial reports which will produce the reliable information for the users and reflects the performance of the entity at the end of that interim period, as the interim financial reports contains greater use of estimates

Restatement of previously reported Interim Financial Reports

The effect of change in accounting policy in the current period financial reports will be adjusted, as per the requirement of IAS 8, as for the annual periods.