Annual vs. Interim Statement

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What are financial statements?

A financial statement is, basically, a summary of all the financial activities of a company for a specific period. These statements are used to evaluate the good or bad performance of a business entity. Generally, most of the companies decide to prepare annual financial statements. However, there are others who might decide to prepare interim financial statements so as to get even more detailed and well-timed information.

Annual vs. Interim Statement

The annual financial statements generally cover a time period longer than what is required to allow timely reporting to creditors and investors of a company. Interim financial statements, on the other hand, covering a period of less than one year (like a month or a quarter), have been developed to give a timelier source of information. However, interim financial statements are generally unaudited and in that case, they should be clearly labeled as ‘unaudited’ thus avoiding misleading the statement users.

Also, in interim reports, accounting principles do not require as much info as would be required in an annual financial statement even though the companies are encouraged to publish complete interim financial statements. Besides, interim financial statements are generally reported for the current interim period and the current year to date featuring comparative data for the previous financial year.

It is, however, important to disclose the material contingencies existing in an interim financial report in a matter akin to that required during the presentation of annual financial statements. These contingencies are assessed in accordance with the annual financial statements. Therefore, the interim financial statements must disclose the seasonal nature of a company’s business activities.

It is, therefore, essentially important for the analysts to understand that interim data are generally less reliable as compared to the annual data as an appraisal of a business company’s operations and financial position due to shortness of the time period. Besides, interim financial reports are also prone to management manipulation, specifically by presenting conformist early quarters and strong ending quarters. On the contrary, due to seasonality of some businesses, the requirement for allocations of cost and expenses among interim periods, and similar other factors, the usability of the info proffered by interim financial statements might be limited. Therefore, they feature timeliness over reliability.

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