Interim financial statements, as governed by IAS 34, serve to update the most recent annual financial statements. While IAS 34 outlines how to prepare these statements under IFRS, it doesn’t specify which entities are required to prepare them or their frequency. Typically, local laws mandate that listed entities produce these statements quarterly or semi-annually. An interim period is defined as any financial reporting period that is shorter than a full financial year.
IAS 34 mandates the presentation of only condensed financial statements accompanied by selected explanatory notes. These condensed statements are significantly shorter than annual financial statements. However, in some jurisdictions, listed entities may also be required to publish full financial statements for interim periods. Notably, IAS 34 does not preclude the preparation of a complete set of financial statements for an interim period.
Components, form and content
An interim financial report should include all primary financial statements in a condensed format (IAS 34.8). ‘Condensed’ implies the inclusion of only the headings and subtotals from the last annual financial statements (IAS 34.10). However, this could be misleading if limited to headings and subtotals alone. Practices vary: some entities include the same line items as in their year-end financial statements, while others may consolidate less significant items.
It’s assumed that users of the interim report will have access to the entity’s most recent annual report. Therefore, an interim report should primarily detail events and transactions from the interim period (IAS 34.15-15A). IAS 34.15B lists examples of significant transactions and events that should be disclosed if they occur during this time.
Additionally, IAS 34.16A outlines specific items to be included in interim reports, which encompass interim financial statements and other documents. Entities may use cross-references to other documents, such as management commentary, provided these are available to users on the same terms and at the same time. This cross-referencing is unique to interim reports and is not permitted in annual financial statements.
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Periods to be presented
IAS 34.20-22 details the periods to be included in an interim report. For example, for an interim period ending on 30 June 20X1 and the preceding annual period ending on 31 December 20X0, the following structure applies:
| Entities reporting half-yearly | Entities reporting quarterly | |
|---|---|---|
| Statement of financial position | At 30 June 20X1/ At 31 December 20X0 | At 30 June 20X1/ At 31 December 20X0 |
| Statement of comprehensive income | 6 months ended 30 June 20X1/ 30 June 20X0 | 6 months ended 30 June 20X1/ 30 June 20X0 3 months ended 30 June 20X1/ 30 June 20X0 |
| Statement of cash flows | 6 months ended 30 June 20X1/ 30 June 20X0 | 6 months ended 30 June 20X1/ 30 June 20X0 |
| Statement of changes in equity | 6 months ended 30 June 20X1/ 30 June 20X0 | 6 months ended 30 June 20X1/ 30 June 20X0 |
In explanatory notes, information for the interim period should be presented on a year-to-date basis, even for entities reporting quarterly (IAS 34.16A).
Materiality
Materiality considerations are also applicable to interim financial statements, as detailed on a separate page.
Recognition and measurement
Interim and annual financial statements should apply the same accounting policies, excluding any changes made and applied under IAS 8, which also affect annual reports (IAS 34.28-36). Reporting frequency should not influence annual results, hence measurements at each interim period’s end are conducted on a year-to-date basis. This approach ensures that the recognition of income, expenses, assets, or liabilities is not deferred or anticipated just because the statements are for an interim period. However, IAS 34 does allow for a full year’s perspective in certain instances, as elaborated below.
Estimates
For interim periods, IAS 34 acknowledges that estimates may not be as precise or detailed as for annual statements (IAS 34.41-42). For example, full stock-taking and valuation procedures for inventories, typically done at the year-end, may not be necessary for interim periods; estimates based on sales margins might suffice. Similarly, the classification of assets and liabilities as current or non-current, and the determination of provisions, which may involve complex, costly processes and outside experts annually, are often handled more simplistically in interim reports. In the case of pensions, interim reports might extrapolate from the latest actuarial valuation rather than engaging a qualified actuary each time.
Certain aspects of financial reporting, such as contingencies measurement, revaluations, and fair value accounting, also adapt to the interim context. For contingencies, entities may not always require formal expert opinions for interim reports as they would for year-end statements. In terms of revaluations and fair value accounting, IAS 16 and IAS 40 allow for reliance on professionally qualified valuers at annual reporting dates, which may not be feasible for interim reports. Additionally, intercompany reconciliations, often detailed at the financial year-end, might be less comprehensive in interim reports (IAS 34.C1-C9).
Impairment of assets
IAS 34 does not require assets to be tested for impairment at each interim period closing. An assessment of impairment indicators is considered sufficient in most instances (IAS 34.B35-B36).
A debate once arose over whether impairment of goodwill recognised during an interim period could be reversed in the same year’s annual financial statements. IAS 36 prohibits reversals of goodwill impairment, but IAS 34 asserts that reporting frequency should not alter annual results. This led to the issuance of IFRIC 10, which explicitly forbids reversing impairment losses of goodwill recognised in interim periods.
Internally generated intangible assets
Deferring costs as assets during an interim period with the expectation that they will later meet the recognition criteria for internally generated intangible assets outlined in IAS 38 is not permissible (IAS 34.B8).
Employer payroll taxes and insurance contributions
In many countries, employer payroll taxes and insurance contributions are capped at a certain annual remuneration level for each employee. As a result, these payments decrease towards the end of the calendar year as higher-earning employees surpass the set remuneration limit. According to IAS 34.B1, companies must calculate an average annual effective payroll tax or contribution rate and apply this rate to the interim period. This leads to a lower recognised expense for the interim period compared to actual payments made. Consequently, a portion of these payments is recognised as an asset and will be expensed later in the year.
Vacations and holidays
The recognition of liabilities and expenses for accumulating paid leave in interim financial statements follows the same criteria as in annual financial statements (IAS 34.B10). This means that entities preparing interim reports just before major vacation or holiday seasons must recognise higher liabilities, even if employees are likely to utilise all their annual leave in the remaining part of the year.
Actuarial valuations of employee benefits
As per IAS 34.B9, entities are not required to conduct actuarial valuations at each interim date. Service and interest costs are based on the most recent valuation and must be adjusted for significant market fluctuations, which typically involves updating the discount rate.
For substantial one-off events such as plan amendments, curtailments, and settlements, immediate recognition in the interim financial statements is necessary. In cases of significant one-off events, an additional actuarial valuation may be required.
Volume rebates and other discounts
IAS 34.B23 mandates that all contractual volume rebates and discounts should be anticipated in both revenue and expenses during an interim period, provided their realisation is probable. This does not apply to discretionary rebates and discounts that are not explicitly stipulated in a contract and legally enforceable.
Levies
Refer to the section on levies within IAS 37.
Income tax
Under IAS 34.30(c), income tax expense in each interim period is based on the estimated average annual effective income tax rate applied to the pre-tax income of the interim period. This estimated rate should reflect a blend of the progressive tax rate structure expected for the year’s earnings. In practice, where possible, a separate estimated average annual effective tax rate is calculated for each taxing jurisdiction and for different categories of income (such as capital gains or industry-specific earnings) and applied to the corresponding interim pre-tax income. However, if achieving such precision is not feasible, a weighted average of rates across jurisdictions or income categories may be used as a reasonable approximation.
For example, an entity operating in a jurisdiction with a progressive tax rate and earning a consistent pre-tax profit each quarter would accrue the same amount of tax expense each quarter. In another scenario, an entity expecting to earn a profit in one quarter and incur losses in subsequent quarters would report a tax expense in the profitable quarter and tax relief in the loss-making quarters, resulting in a balanced annual income tax expense (IAS 34.B12-B22).
Seasonal businesses
For entities with highly seasonal businesses, IAS 34.37-39 states that revenue and expenses cannot be anticipated or deferred at an interim date unless it would be considered appropriate at year-end under applicable IFRSs. While IAS 34.21 encourages these entities to provide additional financial information for the twelve months up to the end of the interim period, along with comparative data for the previous twelve months, this practice is not commonly observed. Regardless, IAS 34.16A(b) requires explanatory comments on the seasonality or cyclicality of interim operations.
Disclosure of standards and interpretations issued but not adopted
IAS 8.31 mandates disclosure about IFRS standards that have been issued but are not yet effective. Although not specifically required by IAS 34, disclosures about developments with significant impact on a company should be provided in line with the general requirements of IAS 34. These disclosures might pertain to the issuance of a new IFRS significantly affecting the company or the finalisation of an assessment of the impact of initial IFRS application on the company’s financial statements.