IAS34:Interim Financial

Reporting
 Objective
• To prescribe :
 Minimum content of an interim financial
report;
 Principles for recognition and measurement in
a complete or condensed financial statements
for an interim period
 Scope
• Does not mandate which enterprises should be
required to present interim financial reports
• If an enterprise is required or elects to prepare and
present interim financial report -the standard
should be complied with
• The recognition and measurement principles as
laid down in this standard should be applied in
respect of information required to be given unless
the statute requires otherwise.
 Scope...
• Cash flow statement, complete or condensed
to be prepared if the enterprise presents cash
flow statement for the purpose of its annual
financial report
 Definitions of key terms

• Interim period is a financial reporting

period shorter than a full financial year.
• Interim financial report means a financial
report containing either a complete set of
financial statements or a set of condensed
financial statements (as described in this
Standard) for an interim period.
 Form and content of interim
reports
• IAS 34 defines the minimum content of an interim
financial report as including condensed financial
statements and selected explanatory notes.
• It does not detail the information that should be
included in these condensed financial statements.
An entity should determine the level of detail and
ensure that the condensed financial statements can
be compared with the previous annual financial
statements. The interim financial report should
provide an update on the latest financial statements.
 Minimum Components of an
Interim Financial Report
• An interim financial report should
include, at a minimum-
-condensed balance sheet
-condensed statement of profit and loss
-condensed cash flow statement and
- selected explanatory notes
Form & Content of an Interim
Financial Statement
• If an entity issues a complete set of financial
statements in the interim report, those
financial statements should comply with IAS
1.
• If the entity publishes interim financial
statements that are condensed, then they
should include, as a minimum, the headings
and subtotals included in the most recent
annual financial statements and the
explanatory notes as required by IAS 34.
 Form & Content...
• If EPS is disclosed in the annual financial
statement then the same needs to be
disclosed on the face of the interim
statement of profit and loss;
• If consolidated annual financial statements
are prepared then interim consolidated
statements need to be prepared in
addition to the separate financial
statements.
 Selected Explanatory Notes...
 The explanatory notes are designed to provide an
explanation of significant events and transactions
arising since the last annual financial statements. IAS
34 assumes that readers of an entity’s interim report
will also have access to its most recent annual report.
As a result, IAS 34 prevents the repetition of annual
disclosures in interim reports. The following
minimum notes should be given:
 a statement that the same accounting policies as
those followed in the latest annual financial
statements or if there have been changes then a
description of the nature and effect of the change;
 Selected Explanatory Notes
• explanatory comments about seasonality of
interim operations;
• the nature and amount of item affecting assets,
liabilities, equity, net income, or cash flows that
are unusual because of their nature, size or
incidence;
 Selected Explanatory Notes...
• the nature and amount of changes in
estimates of amounts reported in prior
interim periods of current financial year or
changes in estimates in prior financial years
if those changes have a material effect in
current interim period;
• issuances, buy-backs, repayments and
restructuring of debt, equity and potential
equity shares;
• dividend, aggregate or per share, seperately
for equity and others;
 Selected Explanatory Notes...
• segment revenue, segment capital employed
and segment result for the enterprise’s primary
segment;

• effect of changes in composition of enterprise

during the interim period, such as
amalgamations, acquisition or disposal of
subsidiaries and long term investments,
restructuring and discontinuing operations;
• material changes in contingent liabilities since
last annual balance sheet date.
 Selected Explanatory Notes...
• The above information should normally be
reported on a financial year to date basis.
Any event or transactions that are material
for
• understanding of current interim period
should also be disclosed.
• Disclosures under other Accounting standards
to be made if complete set of financial
statements are prepared. Those disclosures
are not required if condensed financial
statements are prepared.
Periods for which interim financial statements
are required to be presented
IAS 34 requires this information to be presented:
• Statement of financial position as of the end of
the current interim period and a comparative
balance sheet as of the end of the preceding
financial year.

• Income statements for the current interim

period and for the current financial year to date,
with comparative income statements for the
comparable interim periods (current and year-to
date) of the preceding financial year
Periods for which interim financial statements
are required to be presented
• Statement showing changes in equity for the current
financial year to date, with a comparative statement
for the comparable year-to-date period of the
preceding financial year.

• Cash flow statement for the current financial year to

date, with a comparative statement for the
comparable year-to-date period of the preceding
financial year
Periods for which interim financial statements
are required to be presented
Enterprise Preparing and Presenting Interim Financial Reports Half-Yearly

1 Anenterprisewhose financial year endsonMarch31, presentsfinancial statements(condensedor

complete)for following periodsin its half-yearly financial reportas of September30,2001

Balance Sheet:
As at September 30,2001 March31, 2001

Statement of Profit andLoss:

6months ending September 30,2001 September 30,2000

Cash Flow Statement

6months ending September 30,2001 September 30,2000
Periods for which interim financial statements
are required to be presented
Enterprise Preparing and Presenting Interim Financial Reports Quarterly

1 An enterprise whose financial year ends on March 31, presents financial statements (condensed or
complete) for following periods in its interim financial report for the second quarter ending September
30, 2001:

Balance Sheet:
As at September30,2001 March31, 2001

Statement of Profit and Loss:

6months ending September30,2001 September30,2000

3months ending September30,2001 September30,2000

Cash Flow Statement

6months ending September30,2001 September30,2000
Periods for which interim financial statements are
required to be presented
Enterprise whose Business is highly Seasonal Preparing and Presenting
Interim Financial Reports Quarterly

1 An enterprise whose financial year ends on March 31, may present financial statements condensed or
complete) for following periods in its interim financial report for the second quarter ending September 30,
2001:
Balance Sheet:
As at September 30, 2001 March 31, 2001

Statement of Profit and Loss:

6months ending September 30, 2001 September 30, 2000

3 months ending September 30, 2001 September 30, 2000

12 months ending September 30, 2001 September 30, 2000

Cash Flow Statement

6months ending September 30, 2001 September 30, 2000
12 months ending September 30, 2001 September 30, 2000
 Recognition and Measurement
• The guideline principle is that an entity should
use the same recognition and measurement
principles in the interim statements as it does in
its annual financial statements.

• Measurements for interim reporting purposes

should be made on a “year-to-date” basis, so that
the frequency of the entity’s reporting should not
affect the measurement of its annual results.
• The same definitions and recognition criteria
apply whether dealing with interim or annual
financial reports.
 Recognition and Measurement
To illustrate:
• the principles for recognizing and measuring
losses from inventory write-downs, restructurings,
or impairments in an interim period are the same
as those that an enterprise would follow if it
prepared only annual financial statements.
• a cost that does not meet the definition of an asset
at the end of an interim period is not deferred on
the balance sheet date either to await future
information as to whether it has met the definition
of an asset or to smooth earnings over interim
periods within a financial year; and
 Recognition and Measurement ...

• Revenues received seasonally or occasionally

within a financial year should be recognised
when they occur.

• Costs that are incurred unevenly during an

entity’s financial year shall be anticipated or
deferred for interim reporting purpose if, and
only if, it is also suitable to anticipate or defer
that type of cost at the end of financial year
 Recognition and Measurement ...
• Income tax expenses should be recognized based
on the best estimate of the weighted average
annual income tax rate expected for the full
financial year.

• Preparation of interim financial reports require

greater use of estimation as compared to annual
financial reports.
 Unique problems of Interim
Reporting
Income Taxes:
• Not every dollar of corporate taxable income is
taxed at the same rate; the tax rate is progressive.
This aspect of business income taxes poses a
problem in preparing interim financial statements.

• Should the company use the annualized approach,

Or should it follow the marginal principle
approach?
 Unique problems of Interim
Reporting
• IAS 34 requires to use the annualized approach.
Income tax expense is recognized in each interim
period based on the best estimate of the weighted-
average annual income tax rate expected for the full
financial year.
• This approach is consistent with applying the same
principles in interim reports as applied to annual
report.
 Unique problems of Interim
Reporting
• Seasonality:
Seasonality occurs when most of a company’s sales
occur in one short period of the year while certain costs
are fairly evenly spread throughout the year. For
example, the natural gas industry has its heavy sales in
the winter months. In contrast, the beverage industry
has its heavy sales in the summer months.
 Unique problems of Interim
Reporting
• The problem of seasonality is related to the
expense recognition principle in accounting.
Generally, expenses are associated with the
revenues they create. In a seasonal business, wide
fluctuations in profits occur because of company’s
fixed costs (for example, manufacturing, selling,
and administrative costs that tend to remain fairly
constant regardless of sales or production).
 Unique problems of Interim
Reporting
• To illustrate the seasonality problem, assume the
following information:
Selling price per unit $1
Annual sales for the period (projected and actual)
100,000 units @ $1 $100,000
Manufacturing costs
• Variable 10¢ per unit
• Fixed 20¢ per unit or $20,000 for the year
Nonmanufacturing costs
• Variable 10¢ per unit
• Fixed 30¢ per unit or $30,000 for the year
 Unique problems of Interim
Reporting
Sales for four quarters and the year (projected and
actual) were:

1st Quarter $ 20,000 20%

2nd Quarter 5,000 5
3rd Quarter 10,000 10
4th Quarter 65,000 65
Total for the year $100,000 100%
 Examples of Applying the recognition and
measurement principles

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year

Sales $20,000 $ 5,000 $10,000 $65,000 $100,000
Manufacturing costs
Variable (2,000) (500) (1,000) (6,500) (10,000)
Fixed (4,000) (1,000) (2,000) (13,000) (20,000)
14,000 3,500 7,000 45,500 70,000
Nonmanufacturing costs
Variable (2,000) (500) (1,000) (6,500) (10,000)
Fixed (7,500) (7,500) (7,500) (7,500) (30,000)
Net income $ 4,500 $(4,500) $ (1,500) $31,500 $ 30,000
Examples of Applying the recognition and
measurement principles

• To alleviate this problem, IAS recommends that

companies subject to material seasonal variations
disclose the seasonal nature of their business and
consider supplementing their interim reports with
information for 12-month periods ended at the
interim date for the current and preceding years.
 Condensed Balance Sheet

Figures at the end of Figures at the end of

current interim period the previous
accounting year

I Sources of Funds
1 Capital
2 Reserve and surplus
3 Minority interests (in case of consolidated
financial statements)
4 Loans funds:
(a) Secured loans
(b) Unsecured loans
Total
II Application of funds
1 Fixed assets
(a) Tangible fixed assets
(b) Intangible fixed assets
 Condensed Balance Sheet
Figures at the end of Figures at the end of
current interim period the previous
accounting year
2 Investments
3 Current assets, loans and advances
(a) Inventories
(b) Sundry debtors
(c) Cash and bank balances
(d) Loans and advances
(e) Others

Less: Current liabilites and provisions

(a) Liabilities
(b) Provisions

N e t Current assets
4 Miscellaneous expenditure to the extent of
written off or adjusted
5 Profit and loss acount
Total
 Condensed Profit and Loss
Three months Corresponding three Year-to-date Year-to-date
ended months of the previous figures for figures for the
accounting year current period previous year

1 Turnover
2 Other Income
Total
3 Changes in inventories of
finished goods and work in
progress
4 Cost of Raw materials and
consumables used
5 Salaries, wages and other staff
costs
6 Other expenses
7 Interest
8 Depreciation and amortisations
Total
 Condensed Profit and Loss
Three months Corresponding three Year-to-date Year-to-date
ended months of the previous figures for figures for the
accounting year current period previous year

9 Profit or loss from ordinary

activities before tax
10 Extraordinary items
11 Profit or loss before tax
12 Tax expense
13 Profit or loss after tax
14 Minority Interests (in case of
consolidated financials
statements)
15 Net profit or loss for the period
Earnings Per share
1. Basic Earnings Per Share
2. Diluted Earnings Per Share
 Condensed Cash Flow Statement
Year-to-date figures for Year-to-date figures for
the current period the previous year

1 Cash flows from operating activities

2 Cash flows from investing activities
3 Cash flows from financing activities
4 Net increase/(decrease) in cash and
cash equivalents
5 Cash and cash equivalents at
beginning of period
6 Cash and cash equivalents at end of
period
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