Example 37.1:
Presenting the same headings and sub-totals in condensed
interim financial statements ............................................................ 3054
Example 37.2:
Going concern assessment ............................................................... 3083
Example 37.3:
Entity publishes interim financial reports half-yearly ............... 3085
Example 37.4:
Entity publishes interim financial reports quarterly ................... 3086
Example 37.5:
Disclosing movements on non-current assets in a
complete set of interim financial statements ............................... 3088
Example 37.6:
Entity changes financial year-end .................................................. 3089
Example 37.7:
Disclosing comparatives in interim financial statements
when the preceding financial year covers a longer period ........ 3091
Example 37.8:
Disclosing comparatives in interim financial statements
when the preceding financial year covers a shorter period ...... 3091
Example 37.9:
Measuring interim bonus expense .................................................. 3103
Example 37.10:
Measuring interim income tax expense ......................................... 3107
Example 37.11:
Measuring interim income tax expense – quarterly losses ....... 3107
Example 37.12:
Measuring interim tax expense – many jurisdictions ................. 3108
Example 37.13:
Changes in the effective tax rate during the year ........................ 3110
Example 37.14:
Enacted changes to tax rates applying after the current
year ......................................................................................................... 3111
Example 37.15:
Difference in financial year and tax year ........................................ 3111
Example 37.16:
Tax loss carryforwards expected to be recovered in the
current year ......................................................................................... 3112
Example 37.17:
Tax loss carryforwards in excess of current year expected
profits ..................................................................................................... 3113
Interim financial reporting 3047
Example 37.18:
Accounting by the parent when a hyperinflationary
subsidiary first applies IAS 29 .......................................................... 3116
Example 37.19:
A levy is triggered in full as soon as the entity generates
revenue ................................................................................................. 3119
Example 37.20:
A levy is triggered in full as soon as the entity generates
revenue from a certain activity above an annual threshold,
which is reduced pro rata when the entity ceases
participation in that activity during the year ................................ 3119
Example 37.21:
A levy is triggered in full as soon as the entity holds the
property at a specified date .............................................................. 3120
Example 37.22:
A levy is triggered progressively as the entity holds the
asset through a specified period of time ........................................ 3120
Example 37.23:
Use of estimates .................................................................................. 3122
3048 Chapter 37
3049
Chapter 37
Interim financial
reporting
1 INTRODUCTION
One of the major issues in interim financial reporting is whether the interim period is a
discrete period, or whether an interim period is an instalment of the full year. Under
the first approach, an entity uses the same accounting policies and principles for annual
financial statements as for interim periods. Under the second approach, the purpose of
the interim report is to give investors, analysts and other users a guide to the outcome
of the full year, which requires modifications to the policies and principles used in
annual financial reporting. The former approach is generally referred to as the ‘discrete’
approach, and the latter as the ‘integral’ approach.
The integral approach is not clearly defined, but implies deferring or accruing items
of income or expense in order to present measures of performance for that interim
period that are more indicative of the expected outcome for the year as a whole.
Critics say that this approach obscures the results of the interim period. Proponents
say that such modifications prevent distortion; an interim period is a more artificial
interval than a financial year, and that to report transactions outside of the context of
the annual operating cycle for which they are incurred could potentially present a
misleading picture.
In practice, the distinction between discrete and integral approaches is less clear-cut
than the description above suggests. IAS 34 – Interim Financial Reporting – requires
an entity to use a ‘year-to-date’ approach, [IAS 34.28], which is largely based on the
requirement to report the entity’s financial position as at the interim reporting date, but
for which certain estimates and measurements are based on the expected financial
position of the entity at year-end. However, the standard does not allow such estimates
and measurements to amount to smoothing. For example, the estimate of tax expense
for an interim period is based on actual profits earned as at the interim reporting date
and not the expected tax expense for the year divided by the number of interim
reporting periods, as discussed at 9.5 below.
3050 Chapter 37
The extent of disclosures in interim reports raises similar questions as to the purpose.
If interim reporting is simply a more frequently published version of annual reporting,
then the form and content of the interim report should be the same. However, if interim
reporting is only an instalment of a longer period, then a reporting package that
highlights changes in circumstances during an interim period makes more sense than an
update of all the disclosures in an entity’s annual financial statements. IAS 34 allows an
entity to include either a complete set of financial statements or a condensed version
in the interim report. [IAS 34.4]. While some companies present a full set of financial
statements in their interim reports, predominant practice under IFRS is to present the
condensed version. The differences between full and condensed interim financial
statements are discussed at 3 below.
There is no requirement for entities that prepare annual financial statements in
conformity with IFRS to prepare interim financial statements in accordance with
IAS 34. The fact that an entity may not have provided interim financial reports at all or
may have provided interim financial reports that do not comply with this standard does
not prevent the entity making an explicit and unreserved statement of compliance with
IFRS in respect of its annual financial statements. [IAS 34.2]. Historically, interim
reporting was the prerogativ
e of capital markets and regulators and IAS 34 leaves
governments, securities regulators, stock exchanges and others to determine which
entities report interim information, how often and how soon after the reporting period.
[IAS 34.1]. Accordingly, adherence to local regulatory or legal requirements in interim
financial reports is required.
Nevertheless, governments and regulators often refer to compliance with IAS 34 as part
of their own requirements for interim financial reporting.
1.1 Definitions
The standard defines an interim period as ‘a financial reporting period shorter than a
full financial year.’ [IAS 34.4].
The term ‘interim financial report’ means a financial report for an interim period that
contains either a complete set of financial statements (as described in IAS 1 –
Presentation of Financial Statements) or a set of condensed financial statements as
described in IAS 34 (see 3.2 below). [IAS 34.4].
2
OBJECTIVE AND SCOPE OF IAS 34
2.1 Objective
The stated objective of the standard is ‘to prescribe the minimum content of an interim
financial report and to prescribe the principles for recognition and measurement in
complete or condensed financial statements for an interim period. Timely and reliable
interim financial reporting improves 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.’ [IAS 34 Objective].
Interim financial reporting 3051
2.2 Scope
IAS 34 does not prescribe which entities are required to publish interim financial
reports, how often, or how soon after the end of an interim period. The standard notes
that governments, securities regulators, stock exchanges, and accountancy bodies often
require entities whose debt or equity securities are publicly traded to publish interim
financial reports. Therefore, in the absence of any specific regulatory requirement (or
obligation of the entity, for example, by covenant), entities are not required to publish
interim financial information in a form that complies with IAS 34. Instead, IAS 34 only
applies if an entity either elects or is required to publish an interim financial report in
accordance with IFRS. [IAS 34.1]. Accordingly, if an entity’s interim financial report states
that it complies with IFRS, then the requirements of IAS 34 must be met in full. [IAS 34.3].
The decision to present interim financial reports in accordance with IFRS operates
independently of the annual financial statements. Hence, entities may still prepare
annual financial statements conforming to IFRS even if their interim financial
statements do not comply with IAS 34. [IAS 34.2].
Nevertheless, the IASB encourages publicly traded entities to issue interim financial
reports that conform to the recognition, measurement and disclosure principles set out
in IAS 34. Those entities are specifically encouraged: [IAS 34.1]
(a) to provide interim financial reports at least as of the end of the first half of their
financial year; and
(b) to make their interim financial reports available not later than 60 days after the
end of the interim period.
However, an entity can only describe an interim financial report as complying with
IFRS if it meets all of the requirements of IAS 34. [IAS 34.3]. Accordingly, an entity that
applies all IFRS recognition and measurement requirements in its interim financial
report, but does not include all the required disclosures in IAS 34 may not describe the
interim financial report as complying with IFRS.
As shown in the Extract below, Peel Hotels PLC disclosed that its interim financial
statements for the period ended 14 August 2016 were not prepared in accordance
with IAS 34.
Extract 37.1: Peel Hotels plc (28 weeks to 14 August 2016)
NOTES TO THE INTERIM RESULTS [extract]
1. Basis
of
Accounting [extract]
The interim financial information has been prepared on the basis of the recognition and measurement requirements of
adopted IFRSs as at 14 August 2016 that are effective (or available for early adoption) at 29 January 2017. Based on
these adopted IFRSs, the Directors have applied the accounting policies, which they expect to apply when the annual
IFRS financial statements are prepared for the year ending 29 January 2017.
The group has chosen not to adopt IAS 34 (Interim Financial Statements) in preparing these interim financial statements
and therefore the interim financial information is not in full compliance with International Financial Reporting Standards.
The group’s accounting policies remain as stated in the group’s full annual accounts for the year ended 31 January 2016.
3052 Chapter 37
3
COMPONENTS, FORM AND CONTENT OF AN INTERIM
FINANCIAL REPORT UNDER IAS 34
The standard does not prohibit or discourage an entity from: [IAS 34.7]
• publishing a complete set of financial statements (as described in IAS 1) in its
interim financial report, rather than condensed financial statements and selected
explanatory notes; or
• including in condensed interim financial statements more than the minimum line
items or selected explanatory notes as set out in IAS 34.
The recognition and measurement guidance in the standard, together with the note
disclosures required by the standard, apply to both complete and condensed financial
statements presented for an interim period. This means that a complete set of financial
statements, prepared for an interim period, would include all of the disclosures required
by IAS 34 as well as those required by other IFRSs. [IAS 34.7].
3.1
Complete set of interim financial statements
An entity that publishes a complete set of financial statements in its interim financial
report should include the following components, as required in IAS 1: [IAS 34.5]
(a) a statement of financial position as at the end of the interim period;
(b) a statement of profit or loss and other comprehensive income for the period;
(c) a statement of changes in equity for the period;
(d) a statement of cash flows for the period;
(e) notes, comprising significant accounting policies and other explanatory information;
(f) comparative information in respect of the preceding period for each of the
statements listed at (a) to (d) above and related notes, and for all amounts reported
in the current period’s financial statements (unless specifically exempted by
another IFRS); as well as (if relevant to understanding the current period’s financial
statements) comparative information for narrative and descriptive information;
[IAS 1.38, 38A] and
(g) a statement of financial position as at the beginning of the preceding period
(without a requirement for related notes) when: [IAS 1.40A-40D]
(i) an accounting policy has been applied retrospectively; or
(ii) a retrospective restatement has been made; or
(iii) items have been reclassified,
and the effect of such retrospective application on the information presented in
that statement of financial position is material.
Entities may use alternative titles for the above statements
other than those stated
above. For example, an entity may use the title ‘statement of comprehensive income’
instead of ‘statement of profit or loss and other comprehensive income’. [IAS 34.5]. Also
an entity can refer to the ‘statement of financial position’ as ‘balance sheet’.
If an entity publishes a complete set of financial statements in its interim financial
report, the form and content of those statements should conform to the requirements
Interim financial reporting 3053
of IAS 1. [IAS 34.9]. These requirements are discussed in Chapter 3 at 3. In addition, the
entity should disclose the information specifically required by IAS 34 for interim
financial reports as well as those required by other IFRSs (particularly those discussed
at 4 below). [IAS 34.7].
3.2
Condensed interim financial statements
In the interest of timeliness, cost, and avoiding repetition of previously reported
information, an entity might be required to or elect to give less information at interim
dates as compared with its annual financial statements. [IAS 34.6]. The standard defines
the minimum content of an interim report, as including condensed financial statements
and selected notes, as follows: [IAS 34.6, 8]
(a) a condensed statement of financial position;
(b) a condensed statement or condensed statements of profit or loss and other
comprehensive income;
(c) a
condensed
statement
of changes in equity;
(d) a
condensed
statement of cash flows; and
(e) selected
explanatory
notes.
IAS 34 requires entities to confirm that the same accounting policies and methods of
computation are followed in the interim financial statements as compared to their most
recent annual financial statements or, if those policies or methods have changed, to
describe the nature and effect of the change (see 4.2 below). [IAS 34.16A(a)]. Accordingly,
an entity would only depart from the presentation as applied in its most recent annual
financial statements if it had determined that the format will change in its next annual
financial statements.
The condensed statement of profit or loss and other comprehensive income referred
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 604
