Reporting formats FOREIGN EXCHANGE

Chapter 23 – Interim Reporting Page 336 7 Use of Estimates The preparation of both annual and interim financial reports relies on the use of estimates in measuring assets and liabilities. The measurement procedures in any period should be designed to ensure that the resulting estimates are reliable. It is often the case that the preparation of an interim financial report will require a greater use of estimation methods than the preparation of the annual financial reports. [IAS 34.41] IAS 34 sets out a number of examples where different estimation methods are used in the interim period compared with an entity’s financial year-end, for example:  Inventories: At the year-end it is best practice to perform a full inventory count to ensure that the level of inventories recorded in the financial statements is accurate. However, such a procedure is not necessarily required at the interim reporting date.  Contingencies: While contingencies should be disclosed in interim reports, it is not always necessary to obtain formal reports from experts on such matters as litigation and technical claims in order to verify the amount of such contingencies at the interim date.  Provisions: The inclusion in the financial statements of certain provisions, such as those for warranties or environmental damage, may require the use of experts. Whilst experts may be engaged to assist with the full year-end estimates, at the interim period it may be appropriate instead to update the information that was provided at the previous year end. 8 Chapter Review The key issues covered in this chapter deal with recognition, measurement and disclosure in interim financial statements. IAS 34 does not require the preparation of interim financial statements, but it does specify the minimum content of such reports where they are prepared and the principles to be applied within them. This chapter has covered:  the objectives, scope and terminology of IAS 34;  the form and content of interim financial reports;  interim reporting periods;  recognition and measurement criteria in interim financial reports; and  the calculation of estimates in interim financial reports. Chapter 23 – Interim Reporting Page 337 9 Self Test Questions Chapter 23 1. Are the following statements in relation to an interim financial report true or false, according to IAS34 Interim financial reporting? 1 An interim financial report may consist of a complete set of financial statements. 2 An interim financial report may consist of a condensed set of financial statements. Statement 1Statement 2 A False False B False True C True False D True True 2. Are the following statements with respect to interim reporting true or false, according to IAS34 Interim financial reporting? 1 It is necessary to count inventories in full at the end of each interim accounting period. 2 The net realisable value of inventories is determined by reference to selling prices at the interim date. Statement 1 Statement 2 A False False B False True C True False D True True 3. The Aconite Company is preparing interim financial statements for the six months to 30 June 20X7 in accordance with the minimum requirements of IAS34 Interim financial reporting. Its accounting year ends on 31 December each year. In the interim financial statements for the six months to 30 June 20X7, a statement of financial position at 30 June 20X7 and a statement of comprehensive income for the six months to 30 June 20X7 will be presented. In addition, which TWO of the following should be presented? A Statement of financial position at 30 June 20X6 B Statement of financial position at 31 December 20X6 C Statement of comprehensive income for the half year to 30 June 20X6 D Statement of comprehensive income for the half year to 31 December 20X6