INTERIM FINANCIAL REPORTING
• means the preparation and
presentation of financial
statements for a period of less
than one year.
• PAS 34 prescribes the minimum
content of an interim FS.
• may be presented monthly,
quarterly, or semiannually.
Quarterly interim reports are the
most common.
However, publicly traded entities are
encouraged to provide interim financial
reports at least semiannually and such
reports are to be made available not
later than 60 days after the end of
interim period.
FREQUENCY OF INTERIM
REPORTING
PAS 34 does not mandate which entities
are required to publish interim financial
reports, how frequently, or how soon
after the end of an interim period.
Philippine jurisdiction
• SEC and PSE requires entities
covered by
• 1. Revised Securities Act - file
quarterly interim financial reports
within 45 days after the end of
each of the first three quarters.
• 2. Rules on Commercial Papers
and Financing Act - file quarterly
financial reports within 45 days
after each quarter-end.
TWO VIEWS ON INTERIM FINANCIAL
REPORTING
• Integral view
• Independent view
INTEGRAL VIEW
➢ The integral view is that each
interim period is an integral part
of the annual accounting period.
Under the integral view, annual
operating expenses are
estimated and then allocated to
the interim periods based on
forecasted revenue or sales
volume.
INDEPENDENT VIEW
➢ The independent view is that
each interim period is considered
a discrete or separate accounting
period with status equal to a fiscal
year. Thus, no estimations or
allocations are made for interim
purposes, unless such
estimations or allocations are
allowed for annual reporting.
WHICH VIEW ON INTERIM
FINANCIAL REPORTING IS
FOLLOWED IN PRACTICE?
PAS 34 on interim financial reporting
does not mention about the two views.
Essentially, the standard adopts a mix of
the integral and independent views.
COMPONENTS OF AN INTERIM
FINANCIAL REPORT
PAS 34, paragraph 8. provides that an
interim financial report shall include, at a
minimum, the following components:
a. Condensed statement of financial
position
b. Condensed statement of
comprehensive income
c. Condensed statement of changes in
equity
d. Condensed statement of cash flows
e. Selected explanatory notes.
Nothing in the standard is intended to
prohibit or discourage an entity from
publishing a complete set of financial
statements, rather than condensed
financial statements and selected
explanatory notes.
In other words, PAS 34 allows an entity
to publish a set of condensed financial
statements or complete set of financial
statements in the interim financial report.
CONDENSED
➢ means that each of the headings
and subtotals presented in the
entity's most recent annual
financial statements is required
but there is no requirement to
include greater detail unless this
is specifically required.
SELECTED EXPLANATORY NOTES
➢ The selected explanatory notes
are designed to provide an
explanation of significant events
and transactions arising since the
last annual financial statements.
PAS 34 assumes that financial
statement users have access to
the entity's most recent annual
report.
PRESENTATION OF COMPARATIVE
INTERIM STATEMENTS
1. Statement of financial position
a) Statement of financial position at
the end of current interim period
b) Comparative statement of
financial position at the end of
preceding year.
2. Income statement
a) Income statement for the
current interim period
b) Income statement
cumulatively for the current
financial year to date
c) Comparative income
statement for the comparable
interim period of the preceding
year
d) Comparative income
statement cumulatively for the
comparable financial year to
date of the preceding year
3. Statement of comprehensive
income
a) Statement of comprehensive
income for the current interim
period
b) Statement of comprehensive
income cumulatively for the
current financial year to date
c) Comparative statement of
comprehensive income for the
comparable interim period of
the preceding year
d) Comparative statement of
comprehensive income
cumulatively for the
comparable financial year to
date of the preceding year
4. Statement of changes in equity
a) Statement of changes in equity
cumulatively for the current
financial year to date
b) Comparative statement of
changes in equity for the
comparable financial year to date
of the preceding year
5. Statement of cash flows
a) Statement of cash flows
cumulatively for the current
financial year to date
b) Comparative statement of cash
flows for the comparable financial
year to date of the preceding year
BASIC PRINCIPLES
1. PAS 34, paragraph 28. provides that
an entity shall apply the same
accounting policies in the interim
financial statements as are applied in
the annual financial statements.
2. Revenues from products sold or
services rendered are generally
recognized for interim reports on the
same basis as for the annual period.
3. Costs and expenses are recognized
as incurred in an interim period.
a) Expenses associated directly with
revenue are matched against
revenue in those interim periods
in which the related revenue is
recognized.
b) Expenses not associated directly
with revenue are recognized in
interim periods as incurred or
allocated over the interim periods
benefited.
4. PAS 34, paragraph 21, provides that if
the business is seasonal, in addition to
the current interim period financial
statements, the entity is encouraged to
disclose financial information:
a) For the latest 12 months
b) Comparative information for the
prior comparable 12-month
period
5. The preparation of interim financial
reports generally has a greater use
of estimation than annual financial
reports.
INVENTORIES
Paragraph 25 of Appendix B of PAS
34 provides that inventories are
measured for interim financial
reporting by the same principles as
at financial year-end. Full inventory
and valuation procedures are not
required for inventories at interim
date. Accordingly, if the net realizable
value is lower than cost, a loss on
inventory write-down shall be
recognized regardless of whether the
write-down is temporary or non-
temporary.
SEASONAL, CYCLICAL OR
OCCASIONAL REVENUE
Seasonal, cyclical, or occasional
revenue shall not be anticipated or
deferred as of an interim date if
anticipation or deferral would not be
appropriate at the end of the entity's
reporting period. Thus, dividend
revenue, royalties and government
grants shall be recognized in the
interim period when they occur. For
example, dividend revenue is not
recognized until declared because
even when highly predictable based
on past experience, the dividend is
not an obligation of the entity until it
is legally declared.
UNEVEN COSTS
Costs that are incurred unevenly
during an entity's financial year shall
be anticipated or deferred for interim
purposes only if it is also appropriate
 to anticipate or defer that type of cost
at the end of the financial year.
YEAR-END BONUSES
The nature of year-end bonuses
varies widely. Some are earned
simply by continued employment
during a time a bonuses based on a
monthly, quarterly or annual measure
of performance Some bonuses may
be purely discretionary, contractual
or based on years of historical
precedent.
RECOGNITION OF BONUS
A bonus is anticipated for interim
purposes if and only if:
a) The bonus is a legal obligation
or past practice would make
the bonus a constructive
obligation for which the entity
has no realistic alternative but
to make the payment.
b) A reliable estimate of the
obligation can be made.
IRREGULAR COSTS
Certain costs are expected to be
incurred irregularly during the financial
year, such as charitable contribution and
employee training cost.
Such costs are generally discretionary
and even though they are planned shall
not be anticipated as of an interim date
simply because the costs have not yet
been incurred.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for an
interim period shall be based only on
assets owned during that interim period.
Asset acquisitions or dispositions
planned for later in the financial year
shall not be taken into account.
PAID VACATION AND HOLIDAY
LEAVE
Paid vacation and holiday leave shall be
accrued for interim purposes because
these are enforceable as legal
commitments.
INCOME TAX
Interim period income tax expense shall
reflect the same general principles of
income tax accounting applicable to
annual reporting.
Paragraph 12 of Appendix B of PAS 34
states that the interim period income tax
expense is accrued using the annual
effective income tax rate applied to the
pretax income of the interim period.
GAIN AND LOSS
Gain or loss from disposal of property,
gain or loss from discontinued operation
and other gain or loss shall not be
allocated over the interim periods. The
gain is reported in the interim period
when realized and the loss is reported in
the interim period when incurred.
CHANGE IN ACCOUNTING POLICY
A change in accounting policy other than
one for which the transition is specified
by a new standard shall be reflected by
restating the financial statements of prior
interim periods of the current year and
the comparable interim periods of the
prior financial year".
The objective of this requirement is to
ensure that a single accounting policy is
applied to a particular class of
transactions throughout the entire
financial year.
To allow differing accounting policies for
the same class of transactions within a
single financial year would result in
“interim allocation difficulties, obscured
operating results. and complicated
analysis and understandability of interim
information"