IAS 34 recognises the usefulness of timely and reliable interim financial reporting in improving the ability of investors, creditors and others to understand an entity’s capacity to generate earnings and cash flows and its financial condition and liquidity.
The standard does not oblige entities to publish interim financial reports. However, entities whose debt or equity securities are publicly traded are often required by governments, stock exchanges, accountancy bodies, etc to publish interim financial reports.
If interim financial reports are published and purport to comply with IFRSs, then IAS 34 governs their content.
Each financial report, annual or interim, is evaluated on its own for conformity to IFRSs. If an entity’s interim financial report is described as complying with IFRSs, it must comply with all of the requirements of IAS 34.
The interim period is a financial period shorter than a full financial year. The interim financial report means a financial report containing either a full set of financial statements (in accordance with IAS 1) or a set of condensed financial statements (as outlined in IAS 34) for an interim period.
MINIMUM COMPONENTS OF AN INTERIM FINANCIAL REPORT
An interim report may consist of a condensed version of the full financial statements and should include an explanation of the events and transactions that are significant to an understanding of the interim financial statements.
At a minimum, they should include:
Condensed statement of financial position
Condensed statement of comprehensive income (c) Condensed statement showing either:
- All changes in equity; or
- Changes in equity other than those arising from capital transactions with owners and distributions to owners
- Condensed cash flow statement; and
- Selected explanatory notes
If the entity publishes a set of condensed financial statements in its interim financial report, those condensed statements should include, at a minimum each of the headings and subtotals that were included in its most recent annual financial statements, together with selected explanatory notes as outlined by IAS 34.
The recognition and measurement principle should be the same as those used in the main financial statements.
Additional line items or notes should be included if their omission would render the interim reports misleading.
Basic and diluted earnings per share should be presented on the face of an Statement of Comprehensive Income for an interim period.
If, however, an entity chooses to publish a complete set of financial statements in its interim financial report, the form and content of those statements must conform to IAS 1 for a complete set of financial statements.
SELECTED EXPLANATORY NOTES
The following information must be included, as a minimum, in the notes to the interim accounts (assuming they are material and not included elsewhere in the interim financial statements):
- A statement that the same accounting policies used for the interim report were used for the most recent annual financial statements. If the policies have changed a description of the nature and effect of the change must be given.
- Explanatory comments about the seasonality or cyclicality of interim operations.
- The nature and amount of items that are unusual because of their nature, size or incidence.
- The nature and amount of changes in estimates of amounts reported in prior interim periods of the current financial year and if those changes have a material effect in the current interim period.
- Issuances, repurchases and repayments of debt and equity securities.
- Dividends paid.
- Segment revenue and segment results for business or geographical segments, whichever is the primary basis of segment reporting (only disclose segment reporting in interim accounts if it is required in the full annual accounts).
- Material events after the end of the interim period that have not been reflected in the interim accounts.
- The effect of changes in the composition of the entity during the interim period e.g. business combinations.
- Changes in contingent liabilities or contingent assets since the last annual statement of financial position date.
If an entity’s interim financial report is in compliance with IAS 34, this fact should be disclosed. To be in compliance, it must comply with all of the requirements of IFRSs.
PERIODS FOR WHICH INTERIM FINANCIAL STATEMENTS ARE REQUIRED TO BE PRESENTED
Interim reports should include interim financial statements as follows:
- Statement of Financial Position at the end of the current interim period and a comparative Statement of Financial Position at the end of the immediately preceding financial year.
- Statement of Comprehensive Income for the current interim period, and the cumulative year-to-date figures with comparative Statements of Comprehensive Income for the comparable interim periods (current and year-to-date) of the immediately preceding financial year.
- Statement showing changes in equity cumulatively for the current financial year-to-date, with a comparative statement for the comparable year-to-date period of the immediately preceding financial year.
- Cash flow statement cumulatively for the current financial year-to-date, with a comparative statement for the comparable year-to-date period of the immediately preceding financial year.
In recognising, measuring, classifying or disclosing items for the interim report, materiality for the interim period must be assessed. But, in assessing materiality, it must be recognised that interim statements may rely on estimates to a greater extent than measurements of annual financial data.
SEASONAL OR UNEVEN REVENUE AND COSTS
In measuring income and expenditure for the purposes of interim reports IAS 34 adopts an approach where:
- Revenue received and costs incurred seasonally or unevenly should not be anticipated or deferred when preparing interim financial statements unless that treatment would be appropriate at the end of the year.
- If there is a change in accounting policy during a financial year, figures for prior interim periods of the current financial year should be adjusted for the change, so that the same accounting policies are in force throughout the year.
Thus, if a company is preparing interim accounts for six months, it will report actual figures for those six months. This is the case even if the business is seasonal in nature, with only, say 30% of its sales being made in those six months.
Tax is the only exception to this rule. Tax is computed for the period by charging the expected rate of tax for the year to the profits of the interim period.