estimate of the annual income tax rate changes’. [IAS 34.30(c)].
Interim financial reporting 3095
Another example would be acquisition costs (excluding debt or share issue costs)
incurred in relation to a business combination, which are required to be accounted as
expenses in the periods in which the costs are incurred and the services are received.
[IFRS 3.53]. Such costs would not qualify for deferral at an interim reporting date, even if
the business combination to which the costs relate had not been completed until after
the interim reporting date.
The year-to-date approach differs from the discrete approach in that the financial
position and performance at each reporting date are evaluated not as an isolated period
but as part of a cumulative period that builds up to a full year, whose results should not
be influenced by interim reporting practices. Amounts reported for previous interim
periods are not retrospectively adjusted, and therefore year-to-date measurements may
involve changes in estimates of amounts reported in previous interim periods of the
current year. As discussed at 4.2 and 7 above, IAS 34 requires disclosure of the nature and
amount of material changes in previously reported estimates in the interim financial
report and when separate interim financial report is not presented for the final interim
period, in the full year financial statements. [IAS 34.16A(d), 26, 34-36]. However, the principle
that the results of the full year should not be influenced by interim reporting practices,
has been challenged, as the IASB and Interpretations Committee have identified and tried
to resolve certain conflicts between IAS 34 and other standards, as discussed at 9.2 below.
8.1.2
New accounting pronouncements and other changes in accounting
policies
As noted above, under IAS 34, 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 in the next annual financial statements, and to
determine measurements for interim reporting purposes on a year-to-date basis.
[IAS 34.28].
Unless transition rules are specified by a new standard or interpretation, IAS 34 requires
a change in accounting policy to be reflected by: [IAS 34.43]
(a) restating the financial statements of prior interim periods of the current year and
the comparable interim periods of any prior financial years that will be restated in
the annual financial statements under IAS 8; or
(b) when it is impracticable to determine the cumulative effect at the beginning of the
year of applying a new accounting policy to all prior periods, adjusting the financial
statements of prior interim periods of the current year and comparable interim
periods of prior years to apply the new accounting policy prospectively from the
earliest date practicable.
Therefore, regardless of when in a financial year an entity decides to adopt a new
accounting policy, it has to be applied from the beginning of the current year. [IAS 34.44].
For example, if an entity that reports on a quarterly basis decides in its third quarter to
change an accounting policy, it must restate the information presented in earlier
quarterly financial reports to reflect the new policy as if it had been applied from the
start of the annual reporting period.
3096 Chapter 37
The only exception to the restatement of all comparative periods, is when it is impracticable
to determine the cumulative effect of applying a new accounting policy at the beginning of
the year of application. IAS 1 states that application of a requirement is ‘impracticable’ when
the entity cannot apply it after making every reasonable effort to do so. [IAS 1.7].
Disclosures regarding the restatement can be presented on the face of the financial
statements or disclosed in the notes to the financial statements. If an entity prepares a
complete set of interim financial statements, it should present a third statement of
financial position, as appropriate. [IAS 34.5(f)]. (See 3.1 above).
8.1.2.A
New pronouncements becoming mandatory during the current year
One objective of the year-to-date approach is to ensure that a single accounting policy
is applied to a particular class of transactions throughout a year. [IAS 34.44]. To allow
accounting policy changes as of an interim date would mean applying different
accounting policies to a particular class of transactions within a single year. This would
make interim allocation difficult, obscure operating results, and complicate analysis and
understandability of the interim period information. [IAS 34.45].
Accordingly, when preparing interim financial information, consideration is given to
which new standards and interpretations are mandatory in the next (current year)
annual financial statements. The entity generally adopts these standards in all interim
periods during that year.
For example, IFRS 16 – Leases – is mandatory for annual periods beginning on or after
1 January 2019. [IFRS 16.C1]. Therefore, an entity with a 31 December year-end would have
to apply the standard in its half-yearly report for the six months ending 30 June 2019.
A change in accounting policy would require a restatement of prior comparative
financial statements, except for new accounting standards that have specific application
and transition requirements. [IAS 34.43]. For example, paragraph C3(b) of IFRS 15 allows
an entity to apply the requirements in IFRS 15 without restating the prior comparative
period (see Chapter 3 at 2.3.4). An example where two different accounting policies
were applicable in a single financial year is IFRIC 18 – Transfers of Assets from
Customers. IFRIC 18 was applied prospectively to transfers of assets received from
customers on or after 1 July 2009, which was a departure from the Interpretations
Committee’s and IASB’s normal practice of issuing standards to be applied for annual
periods beginning on or after a certain date. Thus, in this circumstance, an entity could
have used two different accounting policies during a financial year.
An added complication arises for entities incorporated in jurisdictions that apply a
locally endorsed version of IFRS, such as in the European Union, when the IASB issues
a new standard or interpretation that is not yet endorsed as at the end of the interim
reporting period. For example, as noted at 4.4 above, an entity applying IFRS 8 should
disclose the specified segment information in its interim financial reports. In its interim
report for the six months ended 30 June 2007, Deutsche Bank stated its intention to
apply IFRS 8 in its next IFRS annual financial statements. However, because the
European Union had not yet endorsed the standard as at the end of the interim reporting
period, it included the disclosures required by both IFRS 8 and IAS 14 – Segment
Reporting – as explained in the Extract below.
Interim financial reporting 3097
Extract 37.29: Deutsche Bank Aktiengesellschaft (interim ended June 2007)
Basis of Preparation [extract]
The consolidated interim financial statements were prepared in accordance with IFRS issued and effective at
December 31,
2006, which were unchanged at 30 June 2007. The segment information presented in this Report is
based on IFRS 8, “Operating Segments,” with a reconciliation to IAS 14, “Segment Reporting”. IFRS 8, whilst
approved by the IASB, has yet to be endorsed by the EU. On this basis, the Group presents the accounting policies
that are expected to be adopted when the Group prepares its first annual financial statements under IFRS.
8.1.2.B
Voluntary changes of accounting policy
An entity can also elect at any time during a year to apply a new standard or
interpretation before it becomes mandatory through a voluntary change in accounting
policy. However, IAS 1 and IAS 8 only permit an entity to change an accounting policy
if the information results in information that is ‘more reliable and more relevant’ to the
users of the financial statements. [IAS 8.14(b)].
After concluding that a voluntary change in accounting policy is permitted and
appropriate, its effect is reflected in the first interim report the entity presents after the
date on which the entity changed its policy. Under IAS 8, a change in accounting policy
is reflected by retrospective application, with restatement of prior period financial data
as far back as is practicable. However, if the cumulative amount of the adjustment
relating to financial years is impracticable to determine, then under IAS 8, the new
policy is applied prospectively from the earliest date practicable. [IAS 34.44]. An entity is
not allowed to reflect the effect of a voluntary change in accounting policy from a later
date than the beginning of the current year, such as at the start of the most recent
interim period in which the decision was made to change the policy. To allow two
different accounting policies to be applied to a particular class of transactions within a
single year would make interim allocations difficult, obscure operating results, and
complicate analysis and understandability of the interim period information. [IAS 34.45].
One exception to this principle of retrospective adjustment of earlier interim periods is
when an entity changes from the cost model to the revaluation model under IAS 16 –
Property, Plant and Equipment – or IAS 38. These are not changes in accounting policy
that are covered by IAS 8 in the usual manner, but instead required to be treated as a
revaluation in the period. [IAS 8.17]. Therefore, the general requirements of IAS 34 do
not over-ride the specific requirements of IAS 8 to treat such changes prospectively.
However, to avoid using two differing accounting policies for a particular class of assets
in a single financial year, consideration should be given to changing from the cost model
to the revaluation model at the beginning of the financial year. Otherwise, an entity will
end up depreciating assets based on cost for some interim periods and based on the
revalued amounts for later interim periods.
8.1.2.C
Transition disclosures in subsequent interim financial statements in the
year of adoption
For an entity that prepares more than one set of interim financial statements during the
year of adoption of a new standard (e.g. quarterly), it should provide information consistent
with that which was disclosed in its first interim financial statements, but updated for the
3098 Chapter 37
latest information. In some cases, the additional disclosures in a subsequent interim period
only relate to the subsequent interim period as IAS 34.16A allows for cross-referencing to
other documents available on the same terms. Entities should consider the views of local
regulators when planning not to repeat in the current interim financial statements any
disclosures already included in previous interim reports or other documents. That is
because there are different views among regulators as to whether the policy and impact
disclosures should be repeated in full in each set of interim financial statements issued
during the year or whether cross-referencing to earlier interim financial statements or
other documents outside the current interim report is acceptable. For example, in April
2018 the European Securities and Markets Authority (ESMA) published its report on the
activities of accounting enforcers in 2017. In it, ESMA clarified that they expect issuers
applying IFRS 15 for the first time and using a modified retrospective approach to provide
the disclosures about transition required by IFRS 15.C8 in all interim periods that include
the date of initial application of IFRS 15.5
In any event, if an entity becomes aware of new information about the transitional
impact of the new standards as at the date of initial application in a subsequent interim
period, the previously reported disclosures will have to be updated in that later interim
period to reflect the new information.
Local regulators may have additional requirements. For example, foreign private issuers
reporting under IFRS that are required to file interim statements may be affected by the
SEC’s reporting requirement to provide both the annual and interim period disclosures
prescribed by the new accounting standard, to the extent not duplicative, in each
interim report in the year of adoption.6
8.1.2.D
New pronouncements becoming mandatory in future annual reporting
periods
There is no explicit requirement in IAS 34 for a condensed set of financial statements
to include disclosures about standards and interpretations that take effect in future
annual reporting periods. However, if an entity has obtained new information about the
impact of issued but not yet effective amendments of IFRS, it should consider whether
to include updated information in the condensed interim financial statements. When an
entity prepares a complete set of interim financial statements has not applied a new
IFRS that has been issued but is not yet effective, it should disclose:
(a) that
fact;
and
(b) known or reasonably estimable information relevant to assessing the possible
impact that application of the new IFRS will have on the financial statements in
the period of initial application. [IAS 8.30].
In producing the above disclosure, IAS 8 requires that an entity should consider disclosing:
(a) the title of the new IFRS;
(b) the nature of the impending change or changes in accounting policy;
(c) the date by which application of the IFRS is required;
(d) the date as at which it plans to apply the IFRS initially; and
Interim financial reporting 3099
(e) either:
(i) a discussion of the impact that initial application of the IFRS is expected to
have on the entity’s financial statements; or
(ii) if that impact is not known or reasonably estimable, a statement to that effect.
[IAS 8.31].
8.1.3
Voluntary changes in presentation
In some cases, the presentation of the interim financial statements might be changed
from that used in prior interim reporting periods. However, before changing the
presentation used in its interim report from that of previous periods, management
should consider the interaction of the requirements of IAS 34 to include in a set of
condensed financial statements the same headings and sub
-totals as the most recent
annual financial statements, [IAS 34.10], and to apply the same accounting policies as the
most recent or the next annual financial report, [IAS 34.28], and the requirements of IAS 1
as they will relate to those next annual financial statements. IAS 1 states that an entity
should retain the presentation and classification of items in the financial statements,
unless it is apparent following a significant change in the nature of operations or a
review of the financial statements that another presentation is more appropriate, or
unless the change is required by IFRS. [IAS 1.45].
If a presentation is changed, the entity should also reclassify comparative amounts for
both earlier interim periods of the current financial year and comparable periods in
prior years. [IAS 34.43(a)]. In such cases, an entity should disclose the nature of the
reclassifications, the amount of each item (or class of items) that is reclassified, and the
reason for the reclassification. [IAS 1.41, IAS 8.29].
8.2 Seasonal
businesses
Some entities do not earn revenues or incur expenses evenly throughout the year, for
example, agricultural businesses, holiday companies, domestic fuel suppliers, or
retailers who experience peak demand at Christmas. The financial year-end is often
chosen to fit their annual operating cycle, which means that an individual interim period
would give little indication of annual performance and financial position.
An extreme application of the integral approach would suggest that they should predict
their annual results and contrive to report half of that in the half-year interim financial
statements. However, this approach does not portray the reality of their business in
individual interim periods, and is, therefore, not permitted under the year-to-date
approach adopted in IAS 34. [IAS 34.28].
8.2.1
Revenues received seasonally, cyclically, or occasionally
The standard prohibits the recognition or deferral of revenues that are received
seasonally, cyclically, or occasionally at an interim date, if recognition or deferral would
not be appropriate at year-end. [IAS 34.37]. Examples of such revenues include dividend
revenue, royalties, government grants, and seasonal revenues of retailers; such
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 613
