Interim Financial Reporting: IAS 34

Wiecek and Young

IFRS PrimerChapter 28

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Interim Financial Reporting

Related standards IAS 34 Current GAAP comparisons Looking ahead End-of-chapter practice

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Related Standards

APB 28 Interim Financial Reporting

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IAS 34 – Overview

Objective and scope Content of an interim financial report Disclosure in annual financial statements Recognition and measurement Restatement of previously reported interim

periods

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IAS 34 – Objective and Scope Annual reporting

– Often supplemented with interim or quarterly reports

Interim reporting – Reports provide more relevant and timely information

– Often mandated by securities regulators, governments, and stock exchanges

– IASB encourages entities whose shares are publicly traded to provide interim information

At least as of the end of the first half of the year and issue it within 60 days of this date

Standard does not address how often nor how soon after the period entities should produce interim reports

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IAS 34 – Objective and Scope Choice by the entity

– May choose not to prepare interim financial statements at all – May choose to prepare them in accordance with IFRSs

if they do and they describe the financial statements to be in compliance with IFRSs, the standard applies

According to IAS 34, an interim financial report is defined as follows:

. . . a financial report containing either a complete set of financial statements or a set of condensed financial statements for an interim period

Appendices A, B, and C– Accompany the standard– Give numerous examples and clarifications– However, they are not technically part of the standard itself

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IAS 34 – Content of an Interim Financial Report

Goal of interim reporting– To provide information about new events and circumstances and other changes– Not just replicate the information given in the annual financial statements

The standard does not prohibit including a complete set of financial statements

Minimum requirements mandated by the standard – Minimum components of an interim financial report – Form and content of interim financial statements– Selected explanatory notes– Disclosure of compliance with IFRSs– Periods for which interim financial statements are required to be presented– Materiality

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IAS 34 – Content of an Interim Financial ReportMinimum components of an interim financial report

Required condensed statements• Statement of financial position

• Statement of comprehensive income

-Presented as a single statement or a separate income statement plus a statement of comprehensive income

• Statement of changes in equity

• Statement of cash flows

In addition, selected explanatory notes must accompany the above

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IAS 34 – Content of an Interim Financial Report

Form and content of interim financial statements If the entity presents a full set of statements

– Follow IAS 1

If it presents condensed statements– Entity must present at a minimum the headings and subtotals that were presented

in the annual statements

Basic and diluted earnings per share – Presented when the entity is covered by IAS 33

Interim financial statements – Based on consolidated statements where the most recent annual statements were

prepared on a consolidated basis

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IAS 34 – Content of an Interim Financial Report

Selected explanatory notes

Relevant notes unchanged from the annual report – Not included – Repetitive – Can obscure the new and more relevant information

Information is normally presented on a year-to-date basis

Material disclosures• Statement that the accounting policies follows the annual report

• Explanatory comments about the seasonality/cyclicality of the business

• Any unusual items

• Nature and amount of changes in estimates

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IAS 34 – Content of an Interim Financial Report

(continued list)• Changes in debt and equity securities (issue, repurchase, repayment)

• Dividends paid

• Segmented information including Intersegment revenues Segment profit/loss

• Material subsequent events

• Changes in contingent assets/liabilities

Disclosure of compliance with IFRSs

If the financial statements are prepared in compliance with IFRSs, this should be stated and the interim statements must also be in compliance with all IFRSs

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IAS 34 – Content of an Interim Financial Report

Periods for which interim financial statements are required to be presented Which statements are required to be presented?

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IAS 34 – Content of an Interim Financial Report

Materiality Discussed in IAS 1 and 8

– Although there is no specific quantitative guidance

IAS 34 notes that materiality for interim statements should be assessed based on the interim period

Note that interim financials statements may have additional estimates

– Therefore the numbers may be a bit softer

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IAS 34 – Disclosure in Annual Financial Statements

Situations may arise where estimates are changed in the last quarter or final interim period

Where final interim period statements are not separately presented and where the change is significant

– Nature and amount of change in estimate should be disclosed in the annual statements

The standard goes on to cross reference and link this to IAS 8– Requires disclosure of the nature and amount of material changes in estimates

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IAS 34 – Recognition and Measurement Same accounting policies as annual

Entity is required to use the same accounting policies as in the year-end statements

– Encourages consistency– Where there has been a subsequent change in accounting policies, the

entity would use the newer policy

Discrete versus integral

The discrete approach – Treats the interim period as a separate and self-standing period

The integral approach – Treats it as part of the annual period (i.e., as a portion of a larger period)

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IAS 34 – Recognition and Measurement

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IAS 34 – Recognition and Measurement Applying the Recognition and Measurement Principles

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IAS 34 – Recognition and Measurement Revenues received seasonally, cyclically, or occasionally Recognized when they occur or are earned, notwithstanding their cyclical or

seasonal nature

May result in more revenues being recognized in one period than in another– Reflects the underlying reality

Supports the discrete approach

Costs incurred unevenly during the financial year Costs are recognized when incurred

– Only capitalized when they meet the definition of an asset

Also supports the discrete approach

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IAS 34 – Recognition and Measurement Use of estimates Due to necessity, more estimates need to be made in an interim period

An entity needs to communicate this and must take care to ensure that the information is relevant and reliable

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IAS 34 – Restatement of Previously Reported Interim Periods

Where there is a change in accounting policy, the comparative interim information must be restated

Where it is impracticable to determine the cumulative impact, the change would be applied from the earliest date practicable

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Current GAAP Comparisons

Page 150 of 164 ofhttp://www.kpmg.co.uk/pubs/IFRScomparedtoU.S.GAAPAnOverview(2008).pdf

Current GAAP Comparisons

IAS 34 contemplates providing a condensed set of financial statements and does not require the presentation of a cash flow statement for the current interim period, only for the cumulative period

IAS 34 precludes deferral of manufacturing cost variances expected to be absorbed by year end

IAS 34 treats initial recognition of previously unrecognized taxes as an adjustment to annual effective rate used in determining the interim taxes

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Looking Ahead This topic will be dealt with in Phase C of the Financial Statement

Presentation project, which has not yet begun

Topics to be discussed by FASB

1. Which financial statements should be required in an interim financial report

2. Whether entities should be allowed to present the financial statements in an interim financial report in a condensed format

3. What comparative periods should be required or allowed in interim financial reports

4. Whether guidance for non-public companies should differ from guidance for public companies

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End-of-Chapter Practice

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End-of-Chapter Practice

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End-of-Chapter Practice

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