IAS 34 – Interim Financial Reporting
IAS 34 Interim Financial Reporting describes the requirements for minimum content to be included in the interim financial statements of an entity. Interim financial statements refer to such financials which have a financial period shorter than the full year such as quarterly and half year financial statements.
In addition to annual financial statements of an entity, there are interim financial statements issued by various entities. These help shareholders to timely keep track of financial activities of an entity despite waiting for the complete year end. Since such financial statements are more frequently prepared and issued and have the option to either prepare the full set of financial statements under IFRS or a condensed version under this standard. Accordingly, this standard sets out the minimum requirements for interim financial statements.
The standard under consideration does not require or nominate certain entities to prepare interim financial statements. Hence, the choice rests with entities to prepare such financial statements. However, for various listed and public entities, the laws and regulations may require preparing such financial statements.
Also, the International Accounting Standards Committee encourages listed entities to prepare at least interim financial statements for the six months period (i.e. the first half of the year) and to make such financial statements available to users no later than 60 days after the interim period.
An entity must ensure compliance with the requirements of laid down in this standard if it states that its interim financial statements conform to IFRS.
Definitions (simplified and explained)
Interim Period refers to any period which is not the annual period of an entity. For example, if an entity has a year-end falling on 31 December, and it prepares interim financial statements on 31 March, 30 June, and 30 September, then these periods are its interim periods. However, 31 December will not be an interim period instead it will the year end period and full set of financial statements will be prepared as at and for the year ending 31 December.
Interim Financials refers to such interim financial statements which may be a full set under IAS 1or a condensed version in accordance with this standard. One of the key differences between interim financial statements and the annual financial statements is the length of the period covered by such financial statements. In interim financial statement, such period is less than one year.
Content of Interim Financials
While preparing interim financial statements, the entity has the choice to prepare either the full set of financials in accordance with IAS 1 or condensed version of such financial statements in accordance with this standard.
If an entity wants to prepare full set of financial statements under IAS 1 at an interim period, it will use the requirements of IAS 1. (Refer IAS 1 for further details).
Under IAS 1, a full set of financials comprises of:
- Statement of Financial Position (also known as balance sheet)
- A profit or loss or other comprehensive income statement (also called the income statement)
- Changes in equity
- Cash flow statement which is covered in IAS 7
- Notes to the financials (comprising of quantitative and qualitative information about various line items included in the financials)
- comparative information i.e., information (both financial and narrative) for the comparative period; and
- In case of a restatement under IAS 8, the third statement of financial position in addition to the current year statement of financial position and prior year (i.e., comparative) statement of financial position
Titles used in IAS 1 for various statements are not mandatory. Other appropriate titles can also be used. For example, ‘statement of comprehensive income’ can be used instead of ‘statement of profit or loss and other comprehensive income’.
IAS 34 neither restricts an entity nor discourages it to prepare full set of financial statements at an interim period. Instead, it sets out minimum requirements for interim financial statements and even in these interim financial statements, entities are not required to restrict to such minimum information, and they can include more information than required.
Major focus of interim financial statements under IAS 34 is to update on new events and conditions that occurred after the annual period end financial statements. Accordingly, this standard does not require to unnecessarily repeat various information already covered in annual financial statements under IAS 1 and set out the minimum content for interim financial statements.
Minimum Elements of Interim Financials
Interim financials should include at least:
- A condensed Statement of Financial Position
- A condensed Statement of Comprehensive Income and Other Comprehensive Income (or two such statements, one for Comprehensive Income and the other for Other comprehensive income, separately)
- A condensed Statement of Cash Flows
- A condensed Statement of Changes in Equity and
- A condensed notes to such interim financial statements.
Form and Content of Interim Financials
If an entity plans to prepare the full set of financials at an interim period, it will comply with the requirements of IAS 1 while preparing such financial statements.
If an entity prepares condensed financials under this standard, it shall present each of the line items and subtotals as incorporated in its annual financials and selected notes in accordance with the requirements of this standard. Additional notes or items shall be included or incorporated if their non-inclusion may lead such FS to be misleading.
If an entity preparing interim financial statement is a listed entity or otherwise IAS 33 is applicable, it shall include the EPS – earnings per share as well as DPS – diluted earnings per share in its statement of comprehensive income.
If an entity has prepared consolidated financial statements under IFRS 10 as most recent financial statements, it also needs to prepare consolidated interim financial statements under this standard at an interim period. This is because interim financials are an update on the recent financial statements.
If an entity has prepared both consolidated and separate FS as its most recent financial statements (annual financial statements), then it will prepare the consolidated interim financial statements. However, it is not required nor prohibited to prepare the separate financials.
Significant Transactions and Events
At an interim financial report, the entity shall explain significant updates and changes to the entity after its annual financial statements. Since the users of the financials have access to latest financials, there is no need to repeat the information already given in such financial statements.
The following is a list of events or conditions whose disclosure will be required if they are considered as significant.
- NRV write down of inventory items and the reversal such write down
- Impairment loss of assets or a reversal of such impairment (either under IFRS 9 or IAS 36 for financial assets and non-current assets respectively)
- Reversal of provisions made for restructuring under IAS 37
- Additions and disposals made to fixed assets
- Commitments related with the purchase or acquisition of fixed assets
- Updates on pending litigations such as settlement of legal cases
- Corrections for errors in prior period
- Changes in circumstances (such as economic or business environment) that affect the fair values of financial liabilities and assets
- Breaches or defaults on a loan agreement
- Related party transactions
- Changes in the classification of financial assets as a result of change in the purpose and use of such assets
- Transfer between various levels of fair value hierarchy under IFRS 13; and
- Changes in contingent assets or liabilities
This list is not exhaustive and other events or conditions can be included if they are considered as significant.
Individual IFRS provide disclosure requirements for above items such as IAS 37 provides how to disclose changes in provisions made during the year, for example, litigation provisions. For significant changes made after the year end in interim financials, the entity shall provide an explanation of such changes in its interim financials.
Following additional information will be provided in the interim financial report directly or it can be cross referred to some other commentary or information issued by the entity that is available to the stakeholders at the same time and same terms as interim financials. If such information is not available at the same time or at the same terms as interim financial statements, then such information needs to be disclosed in the financial statements otherwise they will be deemed as incomplete.
financial statements otherwise they will be deemed as incomplete.
- A statement that same policies, methods and computations have been used in the interim financial statements as they were provided an applied in the last most recent financial statements prepared under IAS 1 and if there is a change in such policies and computation, a description or narration of such change, nature and its effect will be disclosed.
- Explanation about cyclicality or seasonality of the interim operations
- Details containing the amount and nature of changes in estimates from prior interim period or year
- Details containing the amount and nature of items that are not usual due to their size, nature or incidence
- Details of any equity and debt issued or purchased during the period
- Payment of dividends
- Subsequent events after the interim period that weren’t reflected in interim financial statements
- Changes in the structure of the entity and its effects such as business combinations, disposal or acquisition of long-term investments and subsidiaries, restructuring and discontinued operations.
- For financial instruments, various disclosures for fair value under IFRS 13 and IFRS 7
- Disaggregation of revenue from contracts with customers under IFRS 15
- Following segment information if an entity is required to apply IFRS 8:
- Revenues (both external and inter-segments revenue) as reviewed by chief operating decision maker for various segments
- Profit or loss for each segment
- Total assets and liabilities for each segment that is reportable under IFRS 8
- If there is change in the basis of segmentation from prior period, an explanation of such change.
- A reconciliation of the total of profit or loss as disclosed in segment notes to that disclosed in profit or loss statement with a description of material reconciling items.
Disclosure of Compliance with IFRS
If an entity prepares its interim financials in accordance with this standard, this fact shall be disclosed, if all the requirements of this standard have been complied with.
Periods for which Interim Financials are Required to be Prepared
Periods for which Interim financials are period are:
- Statement of financial position shall be prepared as at the end of interim period along with the comparatives of the previous fiscal year. So, if an entity prepares interim financial statements for the quarter ending 31 March 2020, it shall present the interim statement of financial position as of 31 March 2020, and the comparatives prepared shall be as of 31 December 2019 (which is the immediate previous fiscal year). Similarly, if an entity prepares interim financial statements for the half year ending 30 June 2020, it shall present the interim statement of financial position as of 30 June 2020, and the comparatives prepared shall be as of 31 December 2019 (which is the immediate previous fiscal year) and not the 31 March 2020.
- An interim statement of comprehensive and other comprehensive income for the current fiscal year to date in addition to the current interim period. Comparative for this will be the similar prior interim financial periods for both current interim period and a year-to-date statement for the immediate previous fiscal year.
- A cumulative Statement of Changes in equity for the current fiscal year to date together with a comparative statement of the immediate previous fiscal year.
- A cumulative Statement of cash flows for the current fiscal year to date together with a comparative statement of the immediate previous fiscal year.
Entities whose businesses are more affected by seasonal fluctuations can consider presenting 12 months period for the comparative period.
For making various decisions to measure, categorize or disclose various items in the interim financial statements, materiality will be considered which is calculated based on interim financial information. While considering materiality, it shall be kept in mind that measurements for interim financials may rely more on estimates as compared to annual financial information.
Materiality is defined as: An item or disclosure will be considered material if its omission or misstatement could affect the users of such financial statement while making their decisions.
Disclosure in Annual Financial Statements
If an estimate is made in an interim period and it changes significantly in the final interim period, but such interim period is not presented and entity does not prepare financial statements for such period, it shall disclose the effect and nature of such change in its annual financials.
For example, an entity makes estimates about the useful life an intangible asset purchased during the interim period for the six months ending 30 June 2020 for which interim financial statements are prepared and issued by the entity. By the next and final interim period i.e., 30 September 2020, the estimate on the useful life of such intangible changes significantly, but the entity does not prepare the financial statements for this interim period. Accordingly, it is required to disclose this change in estimate and its effect in its annual financials for the year ending 31 December 2020.
Same Accounting Policies as per Annual Financials
While preparing interim financial statements, an entity shall use all those accounting policies that were disclosed and followed when compiling the annual financials, except for new changes in accounting policies made during the interim financial statements.
Seasonal Variations in Revenue
The revenues that are affected by seasonal variations or otherwise occur occasionally should not be deferred or anticipated as of an interim date if deferral or anticipation would not be deemed appropriate at the end of the fiscal year.
Costs Incurred Unevenly During the Financial Year
Costs that incurred unevenly during the year shall not be equalized or averaged or otherwise anticipated or deferred if it is not appropriate.
Use of Estimates
All necessary information will be considered into account while making estimates as at the interim period. However, it is estimated that interim financial information will require a greater use of estimation methods as compared to annual financial statements.
Restatement of Previously Reported Interim Periods
A change in accounting policy other than the one for which transition is required by the standards shall be restated by restating prior interim financial statement of the current fiscal year and comparable interim periods of the prior year financial statements in accordance with IAS 8.
When it is impracticable to determine the cumulative effect of change in an accounting policy from an earlier applicable period, such impact shall be presented and adjusted from the period where it is practicable.