Interim Financial Reporting

• Auditing and Assurance
• ||
• April 11, 2020

An Interim Financial Report is a complete or condensed set of financial statements reporting the financial results for a period shorter than a fiscal year. Ind AS 34 does not specify which entities must publish an interim financial report. It applies if any entity publishes an interim financial report that asserts compliance with the Indian Accounting Standards.

Ind AS 34 provides the minimum content required to be mentioned in the interim financial report and provides the principles required for recognition and measurement in complete or summarized financial statements for a specified interim period. However, it doesn’t mandate which entities must publish an interim financial report, how frequently, or how soon after the end of an interim period. Interim financial reporting increases the ability of the investors, creditors, and others stakeholders to better understand an entity’s earnings capacity and cash flows and its financial condition and liquidity if they are filed timely.

Minimum content here means set of condensed financial statements for the current period and comparative prior period information, i.e. statement of financial position, statement of operations, statement of cash flows, statement of changes in equity, and required selected explanatory notes. In some cases, a statement of financial position at the start of the prior period is additionally required.

Content of an Interim Financial Report
Ind AS 1 represents a complete set of financial statements as including the following components:

• Statement of asset and liability as at the end of the period;
• Statement of operations for the period;
• Statement of changes in equity for the period;
• Statement of cash flows for the period;
• Notes, with a summary of significant accounting policies and other explanatory notes;
• Comparative financials (BS,PL,CFS) in respect of the prior period;
• Statement of asset and liability as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements.

To save time, cost and to avoid repetition of information that has been previously reported, an entity is required to or may choose to provide less information at interim dates as compared with its annual financial statements. The interim financial report is intended to provide an updated latest complete set of annual financial statements. Accordingly, it focuses on new activities, events, and circumstances and does not present duplicate information which is already previously reported.

Minimum components of an Interim Financial report
An interim financial report generally contains, at a minimum, the following components:

• Condensed balance sheet;
• Condensed statement of operations;
• Condensed statement of changes in equity;
• Condensed cash flow statement; and
• Selected explanatory notes.
  

Benefits of Interim Financial Reporting
Within the interest of timeliness and cost considerations and to avoid repetition of information in previous reports that were filed in previous years, an enterprise may be required to  less information at interim dates as compared to its annual financial statements. Therefore, the standard requires preparation and presentation of an interim financial report containing, as a minimum but each of the headings and subtotals, a set of condensed financial statements. The interim financial report containing condensed financial statements is meant to provide an update on the latest annual financial statements. However, it focuses on new activities, events, and circumstances taking place during the interim period and does not duplicate information previously reported.

Drawbacks of Interim Financial Reporting
Costs incurred unevenly during an entity’s financial year can distort the financial status of the firm for an interim period in the eyes of their investors, creditors and other stakeholders, although within the long run could also be quite helpful in later period.  Also, impact of seasonality and economic cycles is felt more in interim statements and is almost nullified in the Annual report.

Form and Content of Interim Financial Statements
If an entity presents its complete set of financial statements in its interim financial report, the form and content of financial statements should be in parity to the requirements as applicable to annual set of financial statements.

• If an entity presents a set of summarized financial statements in its interim financial report then the summarized statements should include each of the headings and sub-headings that were comprised in its most recent annual financial statements and the selected explanatory notes as required by this Standard. Additional line items or notes should also be included and if the line items are omitted then it would make the condensed interim financial statements misleading.
• If an entity prepares and its annual financial statements by distributing its earning in basic and diluted earnings per share then it should be presented in accordance with AS 20 on the face of the statement of operations, complete or condensed, for an interim period.
• If an entity’s annual financial report includes the consolidated financial statements in addition to the parent’s separate financial statements then the interim financial report should include both the consolidated financial statements and separate financial statements, complete or summarized.
  

Materiality in Interim Financial Reporting
The Indian accounting standards are purporting to apply only on those items which are material during the year. At the time of making assessments of materiality, the measurements of the interim financial statement may depend upon estimates of measurements of annual financial data. Judgment is often encompasses a crucial role in assessing materiality for financial reporting purposes.

Transitional Provision
If an interim financial report is presented for the first time in accordance with this Standard, the following need not be presented in respect of all the interim periods of the current financial year:

• Comparative statements of operations for the comparable interim financial statement with the immediately preceding financial year; and
• Comparative cash flow statement for the comparable interim financial statement with the immediately preceding financial year.

Ind AS 34 does not specify the frequency at which the interim reporting will be done, however as per SEBI, every listed company is supposed to issue quarterly results, a quarter being less than 12 month will be within the scope of Ind AS 34.

We assist our clients in compliance with Interim Financial Reporting and audit of quarterly or annual financial statements. If you want to know more about compliance with this standard or its transition, please click here.