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Condensed means that each of the headings and sub-totals 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 by IAS 34. Generally there is no requirement to update detailed notes presented in the last full financial statements, because a user will have
access to this previously published information. However, an entity should provide additional line items and headings if their omission would be misleading to users of the interim
information. [IAS 34.10]
IAS 34 requires an entity to present both basic and fully diluted earnings per share EPS figures, calculated for the interim period. [IAS 34.11]
4.3 Selected explanatory notes
As mentioned above, relatively insignificant updates to the information presented in the notes in the most recent full financial statements are not required in an interim report. A user of the
financial statements will have the last set of financial statements and a comparison of these with the condensed reports presented in the interim statement should provide enough
information to ensure that an informed decision about the current financial position of the entity can be made. However, some information is essential to the understanding of the
interim report, and therefore IAS 34 does require that it is presented in the notes in the interim report. This information should normally be prepared on a year-to-date basis i.e. by treating
the interim period as distinct in its own right rather than as part of a longer period. Other information should be presented if the omission of such information would affect the economic
decisions of users of the information.
Information presented and measured during an interim period is based on the facts for that interim period. The overriding goal is for a user of the interim report to understand the
information that is presented within it on a stand alone basis.
The use of estimates is inherent in the preparation of all financial information, including that contained in an interim report. Where an estimate made in an interim period changes
significantly in the following interim period, but no separate financial information has been presented for the following interim period, an entity should explain this change in the full
financial statements. This additional disclosure is only required where the change is significant, for example where the original assessment of a fall in the value of an asset has
changed due to the outcome of an event that happened in the remaining part of the financial year. [IAS 34.26]
The explanatory information required to be presented in the notes to the interim financial statements is set out below. [IAS 34.16]
In preparing an interim report an entity should apply the same accounting policies and methods of computation that were followed and used for the preparation of its most
recent annual financial statements. This provides consistency of measurement and presentation and assists comparability. An entity is required to disclose this fact
clearly in the interim report. Where it has been necessary to adopt a different policy or method, for example following the publication of a new international standard, this
should be fully explained, providing a description of the nature and effect of the change. Where an entity has changed its accounting policy during an interim period, it
should restate comparative interim period results in line with IAS 8 Accounting policies, changes in accounting estimates and errors. [IAS 34.43]
Many businesses are seasonal in nature or go through cycles; for example, a retail outlet selling ice-cream will make the majority of its sales during the summer months.
An interim period which only covers the winter months is likely to be very different to one covering the summer months for such an entity. Information should therefore be
disclosed to explain this difference. In seasonal businesses an entity is encouraged to present additional comparative information as well as that set out in Section 5 below.
[IAS 34.21]
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An entity should disclose items that are unusual in nature, size or incidence in the current period, and changes in estimates of amounts reported in the prior period
which impact the current interim period in a way that might affect the economic decisions made by a user of the interim report.
Where an entity is required by IFRS 8 Operating segments to present segmental information in its annual financial statements, it should report the segmental profit or
loss in its interim report. Information in respect of revenues from external customers and inter-segment revenues should be provided if such revenues are included in the
segment profit or loss reviewed internally. Total assets should be disclosed if there have been any significant changes since the last annual financial statements. Any
changes in the segmentation within the entity since the last annual financial statement should be explained along with a reconciliation of the total reportable
segments’ profit and loss to the entity’s profit or loss before taxation.
An entity is required to disclose information on significant events that have occurred after the end of the interim period in the same way as it does in its full financial
statements. An entity should include information on the effect of any changes in composition of
the entity during the interim period. Such changes might include, for example, the acquisition or disposal of a significant subsidiary, a discontinued operation being
identified or the restructuring of the entity’s main businesses.
Additional information is also required in relation to changes in the capital structure of the entity; this might be through a share issue or the repayment of debt. Information
in relation to an entity’s contingent liabilities or contingent assets should be updated for changes since the end of the last reporting period, and any dividends paid during
the period should be disclosed.
If an entity’s interim financial reports have been prepared to comply with IAS 34, this fact should be disclosed. [IAS 34.19]
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5 Reporting Periods
Interim reports should include interim financial statements condensed or complete for periods as follows: [IAS 34.20]
Statement Current interim period
Comparative
Statement of financial position
At end of the current interim period
At end of the immediately preceding financial year
Statement of comprehensive income
For: the current interim period;
and cumulatively for year-to-
date where the interim period is not on a year-to-
date basis For the comparable interim
periods: same interim period;
and cumulatively for year-
to-date of the immediately preceding
financial year
Statement of changes in equity
Cumulatively for year-to-date Year-to-date of the
immediately preceding financial year
Statement of cash flows Cumulatively for year-to-date
Year-to-date of the immediately preceding
financial year
Illustration 1
An entity has a 31 March financial year end, and is about to present its half-yearly interim financial statements for the six months to 30 September 2007.
The relevant dates for which each interim financial statement needs to be prepared for the current period and for the comparative periods are:
Statement Current interim period
Comparative
Statement of financial position: as at
30 September 2007 31 March 2007
Statement of comprehensive income:
6 months ending 30 September 2007
30 September 2006 Statement of changes in
equity: 6 months ending
30 September 2007 30 September 2006
Statement of cash flows: 6 months ending
30 September 2007 30 September 2006
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6 Recognition and Measurement
There are two possible approaches to recognition and measurement in interim financial statements:
the discrete approach: where each interim period stands alone as an independent reporting period; or
the integral approach: where each interim period is seen as part of the larger accounting year to which it belongs, where revenues and costs would be recognised
as a proportion of the annual totals. In most circumstances IAS 34 requires the discrete approach, i.e. year-to-date basis. As a
result, the entity should apply the same accounting policies in its interim financial statements as in its annual financial statements, making measurements for the interim period on a year-
to-date basis. This basis may result in a different measurement being used in the full financial statements compared with that for the interim period, as a result of events that occur following
the interim period. [IAS 34.28]
Illustration 2
An entity’s accounting year ends on 31 December 2008, and it is currently preparing interim financial statements for the half year to 30 June 2008.
The price of its products tends to vary. At 30 June 2008, it has inventories of 100,000 units, at a cost per unit of CU1.40. The net realisable value of the inventories is CU1.20 per unit at 30
June 2008. The expected net realisable value of the inventories at 31 December 2008 is CU1.55 per unit.
The value of the inventories in the interim financial statements at 30 June 2008 is the lower of cost and NRV at 30 June 2008. This is:
100,000 x CU1.20 =
CU120,000 The net realisable value at 31 December 2008 is only relevant to the financial statements for
the full year.
Revenues that are received, or costs that are incurred, only at certain points in time within a financial year should not be spread over the full year by anticipating or deferring them; instead
they should be recognised as they become receivable or are incurred. As an example, if it is appropriate to accrue a government grant throughout the year, then a consistent treatment
should be followed during the interim period. [IAS 34.37, 34.39]
Illustration 3
An entity’s accounting year ends on 31 December each year and it is currently preparing interim financial statements for the half year to 30 June 2008. It has a contractual agreement
with its staff that it will pay them an annual bonus equal to 10 of their annual salary if the full year’s output exceeds 1 million units. Budgeted output is 1.4 million units and the entity
has achieved budgeted output during the first six months of the year. Annual salaries are estimated to be CU100 million, with the cost in the first half year to 30 June being CU45
million.
It is probable that the bonus will be paid, given that the actual output already achieved in the year is in line with budgeted figures, which exceed the required level of output. So a bonus
of CU4.5 million should be recognised in the interim financial statements at 30 June 2008.
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Although a year-to-date approach is generally applied for the preparation of interim reports, IAS 34 requires that income tax should be accrued based on the entity’s best estimate of
what the weighted average annual tax rate will be. However, the taxable profit is that for the interim financial reporting period only i.e. it is not a proportion of the annual profit.
Illustration 4
An entity’s accounting year ends on 31 December 2008, and it is currently preparing interim financial statements for the half year to 30 June 2008.
Its profit before tax for the 6 month period to 30 June 2008 is CU6 million. The business is seasonal and the profit before tax for the six months to 31 December 2008 is almost certain
to be CU10 million. Income tax is calculated as 25 of reported annual profit before tax if it does not exceed CU10 million. If annual profit before tax exceeds CU10 million the tax rate
on the whole amount is 30.
The taxation charge in the interim financial statements is based upon the weighted average rate for the year. In this case the entity’s tax rate for the year is expected to be 30. The
taxation charge in the interim financial statements will be CU1.8 million.
6.1 Impairment in the interim period
Following a potential conflict between IAS 34 and IAS 36 Impairment of assets, IFRIC issued some interpretation guidance in the form of IFRIC 10 Interim financial reporting and
impairment in July 2006. The guidance sets out that where certain impairment losses have been recognised in an interim period, no reversal is permitted in subsequent interim financial
statements or the full annual financial statements. The impairment losses in question are those in respect of goodwill or an investment in either an equity instrument or a financial asset
carried at cost.
The confusion arose because, while IAS 36 and IAS 39 are clear that impairments of goodwill and these investments should not be reversed in a subsequent reporting period, IAS 34
states that measurement for interim reporting purposes is made on a year-to-date basis. IAS 34 also states that the frequency of an entity’s reporting should not affect measurements
made in its annual financial statements. Applying IAS 34 in isolation might therefore have led to an impairment which existed at an interim period, but subsequently reversed at the year
end, being reversed in the full annual financial statements.
