ended 31 December 2015, which have also been voluntarily included in these financial statements for reference.
Given the lack of clarity in IAS 34 as to the meaning of ‘comparable’ in the case where
the current financial year runs for a period that is different to ‘the immediately
preceding financial year’, [IAS 34.20], there are arguments to support each of the
interpretations illustrated in Example 37.6 and Extract 37.28 above.
In the Extract above, Sirius Minerals notes that it has considered seasonality of its
operations in determining whether the information presented for a prior interim period
is comparable. The implication is that had it determined that operations were seasonal,
the entity might have reported a different comparative period (perhaps for the six
months ended 30 June 2015). As noted at 5 above and illustrated in Example 37.3, in
cases where the entity’s business is highly seasonal, IAS 34 encourages the reporting of
additional financial information for the twelve months up to the end of the interim
period, and comparative information for the prior twelve-month period, in addition to
the financial statements for the periods set out above. [IAS 34.21].
5.4
Comparatives following a financial period longer than a year
The discussion at 5.3 above demonstrates that when an entity changes its annual
reporting date, the determination of comparative periods in the interim financial
statements could be interpreted differently without definitive guidance in IAS 34.
Another situation where confusion may be caused by the requirement to present
comparative information for ‘the comparable interim periods (current and year-to-
date) of the immediately preceding financial year’, [IAS 34.20], arises when the previous
annual financial statements related to a period other than twelve months. This situation
is not uncommon for a newly incorporated entity, which might have either a shorter or
a longer reporting period in its first financial year.
Consider an entity that has a long initial accounting period of eighteen months and that
is required to prepare interim financial reports on a quarterly basis. Accordingly, it
would have six ‘quarters’ in its first financial reporting period and in line with the
requirements of IAS 34, the entity would present statements of profit or loss and other
comprehensive income, changes in equity and cash flows for each three month period
Interim financial reporting 3091
and cumulatively for the year-to-date. In the next financial year, however, the
previously published year-to-date amounts would no longer be comparable. The
following example illustrates this situation.
Example 37.7: Disclosing comparatives in interim financial statements when the
preceding financial year covers a longer period
An entity’s financial year-end is 31 December and it issues quarterly interim financial statements. It was
incorporated on 1 July 2017 and prepared its first set of financial statements for a period of eighteen months
to 31 December 2018. In this period, the entity prepared interim financial statements under IAS 34 for each
of the three month periods ended 30 September 2017, 31 December 2017, 31 March 2018, 30 June 2018,
30 September 2018 and 31 December 2018. Each interim report contained information for the three month
period and the year-to-date, which started on 1 July 2017.
In the next year, a twelve month annual reporting period, the entity is preparing its interim financial report
for the three months (and half-year) ending 30 June 2019. Accordingly, it presents statements of profit or
loss and other comprehensive income, changes in equity and cash flows for the three month period from
1 April 2019 to 30 June 2019 and for the year-to-date (from 1 January 2019 to 30 June 2019). Under IAS 34,
the entity is also required to present comparative statements of profit or loss and other comprehensive income,
cash flows, and changes in equity for the comparable interim periods in the preceding financial year.
However, in its interim report for the three months ended 30 June 2018, i.e. in the prior year, the entity had
presented information for the three month period from 1 April 2018 to 30 June 2018 as well as for the year-
to-date period, from 1 July 2018 to 30 June 2018, which was then a period of twelve months.
The entity determines that the year-to-date comparative statements would cover the same period in the
preceding year as the current year, which in this case would be for the three month period from 1 April 2018
to 30 June 2018 and for the six-month period from 1 January 2018 to 30 June 2018.
It should be noted in the above example that none of the interim financial statements
issued in the entity’s first (eighteen month) reporting period would contain comparative
information. In particular, no comparatives would be required for the three month
periods ended 30 September 2018 and 31 December 2018 because the corresponding
periods in the preceding calendar year (i.e. 30 September 2017 and 31 December 2017)
actually form part of the same (eighteen month) financial period and therefore
comparatives from a preceding financial reporting period did not exist.
5.5
When the comparative period is shorter than the current period
The same considerations apply when determining the comparable comparative period in
the following circumstances when a newly incorporated entity’s first financial year was short.
Example 37.8: Disclosing comparatives in interim financial statements when the
preceding financial year covers a shorter period
An entity was incorporated on 17 December 2018 and its equity shares were admitted to trading on a
recognised stock market in April 2019. It determined that its annual reporting date will be 30 June each year
and issues its first set of annual financial statements for the period ended 30 June 2019.
In compliance with the rules of the stock market, the entity issues its first half-yearly report for the six months
ended 31 December 2019. This begs the question whether the comparative period for this interim would be
the short period from 17 December 2018 (i.e. the date of incorporation) to 31 December 2018 or the first six
months following the entity’s incorporation, from 17 December 2018 to 16 June 2019.
As in Example 37.8 above, the entity could determine that the period-to-date comparative statements would
cover the same period in the preceding annual reporting period as the current year, which in this case would
be from 17 December 2018 to 31 December 2018. The entity should provide sufficient disclosure to explain
the particular circumstances and the limited comparability with the current period.
3092 Chapter 37
6 MATERIALITY
In making judgements on recognition, measurement, classification, or disclosures in
interim financial reports, the overriding goal in IAS 34 is to ensure that an interim
financial report includes all information relevant to understanding an entity’s financial
position and performance during the interim period. [IAS 34.25]. The standard draws from
IAS 1 and IAS 8, which define an item as material if its omission or misstatement could
influence the economic decisions of users of the financial statements but do not contain
quantitative guidance on materiality. [IAS 34.24]. IAS 34 requires materiality to be
<
br /> assessed based on the interim period financial data. [IAS 34.23].
Therefore, decisions on the recognition and disclosure of unusual items, changes in
accounting policies or estimates, and errors are based on materiality in relation to the
interim period figures to determine whether non-disclosure is misleading. [IAS 34.25].
Neither the previous year’s financial statements nor any expectations of the financial
position at the current year-end are relevant in assessing materiality for interim
reporting. However, the standard adds that interim measurements may rely on
estimates to a greater extent than measurements of annual financial data. [IAS 34.23].
In September 2017, the IASB published IFRS Practice Statement 2 – Making Materiality
Judgements (Statement 2). This is a non-mandatory statement and does not form part
of IFRS. See Chapter 3 at 4.1.7 for a discussion on Statement 2.
Statement 2 includes guidance that specifically relates to materiality judgements for
interim reporting. Whilst an entity considers the same materiality factors as in its annual
assessment, it would also take into consideration the shorter time period and the
different purpose of an interim financial report in the following respects:2
(a) assessing whether information in the interim financial report is material in relation
to the interim period financial data, not annual data; [IAS 34.25]
(b) applying the materiality factors on the basis of both the current interim period data
and also, whenever there is more than one interim period (e.g. in the case of
quarterly reporting), the data for the current financial year to date; and
(c) considering whether to provide in the interim financial report information that is
expected to be material to the annual financial statements. However, information that
is expected to be material to the annual financial statements need not be provided in
the interim financial report if it is not material to the interim financial report.
As regards purpose, the guidance suggests that entities should also have regard to the
fact that an interim financial report is intended to provide an update on the latest
complete set of annual financial statements. Information that is material to the interim
period, but was already provided in the latest annual financial statements, does not need
to be reproduced in the interim financial report, unless something new occurs or an
update is needed. [IAS 34.15, 15A].3
When an entity concludes that information about estimation uncertainty is material it
needs to disclose that information. As discussed at 10 below, measurements included in
interim financial reports often rely more on estimates than measurements included in
the annual financial statements. [IAS 34.41]. That fact does not, in itself, make the
estimated measurements material. Nevertheless, relying on estimates for interim
Interim financial reporting 3093
financial data to a greater extent than for annual financial data might result in more
disclosures about such uncertainties being material, and thus being provided in the
interim financial report, compared with the annual financial statements.4
7
DISCLOSURE IN ANNUAL FINANCIAL STATEMENTS
An estimate of an amount reported in an interim period can change significantly during
the remainder of the year. An entity that does not present a separate interim financial
report for its final interim period should disclose the nature and amount of significant
changes in estimates in a note to the annual financial statements for that year. [IAS 34.26].
This disclosure requirement is intended to be narrow in scope, relating only to the
change in estimate, and does not create a requirement to include additional interim
period financial information in the annual financial statements. [IAS 34.27].
The requirement to disclose significant changes in estimates since the previous interim
reporting date is consistent with IAS 8 and paragraph 16A(d) of IAS 34. These standards
require disclosure of the nature and the amount of a change in estimate that has a
material effect in the current reporting period or is expected to have a material effect
in subsequent periods. IAS 34 cites changes in estimate in the final interim period
relating to inventory write-downs, restructurings, or impairment losses recognised in
an earlier interim period as examples of items that are required to be disclosed.
[IAS 34.27].
8
RECOGNITION AND MEASUREMENT
The recognition and measurement requirements in IAS 34 arise mainly from the
requirement to report the entity’s financial position as at the interim reporting date, but
also requires certain estimates and measurements to take into account the expected
financial position of the entity at year-end, where those measures are determined on
an annual basis (as in the case of income taxes). Many preparers misinterpret this
approach as representing some form of hybrid of the discrete and integral methods to
interim financial reporting. This can cause confusion in application and can lead to the
accusation that IAS 34 seems internally inconsistent.
In requiring the year-to-date to be treated as a discrete period, IAS 34 prohibits the
recognition or deferral of revenues and costs for interim reporting purposes unless such
recognition or deferral is appropriate at year-end. As with a set of annual financial
statements complying with IAS 8, IAS 34 requires changes in estimates and judgements
reported in previous interim periods to be revised prospectively, whereas changes in
accounting policies and errors are required to be recognised by prior period adjustment.
However, IAS 34 allows looking beyond the interim reporting period, for example in
estimating the tax rate to be applied on earnings for the period, when a year-to-date
approach does not.
The recognition and measurement requirements of IAS 34 apply regardless of whether
an entity presents a complete or condensed set of financial statements for an interim
period, [IAS 34.7], and are discussed below.
3094 Chapter 37
8.1
Same accounting policies as in annual financial statements
The principles for recognising assets, liabilities, income and expenses for interim
periods are the same as in the annual financial statements. [IAS 34.29]. Accordingly, an
entity uses the same accounting policies in its interim financial statements as in its most
recent annual financial statements, adjusted for accounting policy changes that will be
reflected in the next annual financial statements. However, IAS 34 also states that the
frequency of an entity’s reporting (annual, half-yearly or quarterly) do not affect the
measurement of its annual results. To achieve that objective, measurements for interim
reporting purposes are on a year-to-date basis. [IAS 34.28].
8.1.1
Measurement on a year-to-date basis
Measurement on a year-to-date basis acknowledges that an interim period is a part of
a full year and allows adjustments to estimates of amounts reported in prior interim
periods of the current year. [IAS 34.29].
Still, the principles for recognition and the definitions of assets, liabilities, income, and
expenses for interim periods are the same as in annual financi
al statements. [IAS 34.29].
Therefore, for assets, the same tests of future economic benefits apply at interim dates
as at year-end. Costs that, by their nature, do not qualify as assets at year-end, do not
qualify for recognition at interim dates either. Similarly, a liability at the end of an
interim reporting period must represent an existing obligation at that date, just as it must
at the end of an annual reporting period. [IAS 34.32]. Under IAS 34, as under the IASB’s
Conceptual Framework, an essential characteristic of income and expenses is that the
related inflows and outflows of assets and liabilities have already occurred. If those
inflows or outflows have occurred, the related income and expense are recognised;
otherwise they are not recognised. [IAS 34.33].
The standard lists several circumstances that illustrate these principles:
• inventory write-downs, impairments, or provisions for restructurings are
recognised and measured on the same basis as at a year-end. Except for reversals
of certain impairments (see 9.2 below), later changes in the original estimate are
recognised in the subsequent interim period, either by recognising additional
accruals or reversals of the previously recognised amount; [IAS 34.30(a)]
• costs that do not meet the definition of an asset at the end of an interim period are not
deferred in the statement of financial position, either to await information on whether
it meets the definition of an asset, or to smooth earnings over interim periods within a
year. [IAS 34.30(b)]. For example, costs incurred in acquiring an intangible asset before
the recognition criteria are met are expensed under IAS 38 – Intangible Assets. Only
those costs incurred after the recognition criteria are met can be recognised as an
asset; there is no reinstatement as an asset in a later period of costs previously
expensed because the recognition criteria were not met at that time; [IAS 38.71] and
• income tax expense is ‘recognised in each interim period based on the best
estimate of the weighted-average annual income tax rate expected for the full
financial year. Amounts accrued for income tax expense in one interim period may
have to be adjusted in a subsequent interim period of that financial year if the
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 612
