IAS 34 Interim Financial Reporting

Transcription

1 // Shreeji // IAS 34 Interim Financial Reporting 1. Introduction IAS 34 Interim Financial Reporting was issued by the International Accounting Standards Committee in February A limited amendment was made in Objective The objective of this standard is to prescribe the minimum content of an interim financial report and the principles for recognition and measurement in complete or condensed financial statements for an interim period. Timely and reliable interim financial reporting improves the ability of investors, creditors, and others to understand an entity s capacity to generate earnings and cash flows and its financial condition and liquidity. 1.2 Scope This Standard applies if an entity is required or elects to publish an interim financial report in accordance with International Financial Reporting Standards (IFRSs). IAS 34 does not mandate which entities should be required to publish interim financial reports the frequency of publication nor how soon after the end of an interim period the report should be published. However, National regulators often require the preparation of interim statements where an entity s equity or debt is publicly traded. Even the IASB also encourages publicly traded entities to prepare interim financial information in accordance with IAS 34 for at least at the end of the first half of a financial year, with this information being presented within 60 days of end of this period.

2 1.3 Definitions An interim financial report is defined as being a financial report containing either a complete set of financial statements (as described in IAS 1 Presentation of financial statements) or a set of condensed financial statements (as described in IAS 34) for an interim period. [IAS 34.4] An 'interim period' is any financial reporting period which is shorter than a full financial year. [IAS 34.4] 2. Content and Forms 2.1 Contents An interim financial report should, as minimum, include: [IAS 34.8] a condensed statement of financial position, a condensed statement of comprehensive income presented as either a condensed single statement, or a condensed separate income statement and a condensed statement of comprehensive income a condensed statement of changes in equity a condensed statement of cash flows selected explanatory notes 2.2 Form If an entity chooses to publish a complete set of financial statements for an interim period, it should be in accordance with IAS 1 rather than IAS 34 even if it is for an interim period. [IAS 34.9] However, disclosures specified by other IFRSs are not required in an interim financial report that includes only condensed financial statements and selected explanatory notes. Thus, it is more likely that an entity will choose to publish condensed information in its interim financial statements, as it is less onerous to prepare. 2.3 Consolidation

3 An interim financial report is prepared on a consolidated basis if the entity s most recent annual financial statements were consolidated statements. 2.4 Condensed statement of financial position A statement of financial position should include each of the major components of: assets, liabilities, and equity that were present in its most recent annual statement of financial position. 2.5 Condensed statement of comprehensive income Statement of comprehensive income should include; revenue, each of the components of income and expense that were presented in the most recent annual statement of comprehensive income; and basic and diluted earnings per share. 2.6 Condensed statement of cash flow A statement of cash flow should include the three major subtotals of cash flows required by IAS 7 Statement of Cash Flows. 2.7 Changes in equity The statement of changes in equity should include each of the major components of equity that were presented in the most recent annual statement of changes in equity. 2.8 Selected Explanatory Notes At an interim date, an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the entity since the end of the last annual reporting period is more useful. The following should be disclosed in Explanatory Notes: [IAS 34.16]

4 A statement that the accounting policies and methods of computation followed are the same as those in the most recent annual financial statements (or a description of the nature and effect of any changes), explanation of the seasonality or cyclical nature of interim operation, the nature and amount of items affecting assets, liabilities, equity, net income, or cash flows that are unusual because of their nature, size or incidence, the nature and amount of changes in estimates of amounts reported in prior interim periods of the current financial year or changes in estimates of amounts reported in prior financial years, if those changes have a material effect in the current interim period, issuances, repurchases, and repayments of debt and equity securities dividends paid, segment information (if required by IFRS 9 Operating Segments to be disclosed in the entity s annual financial statements), significant events subsequent to the end of the interim period, the effect of the acquisition or disposal of subsidiaries during the interim period, significant changes in a contingent liability or a contingent asset since the end of last annual reporting period, and the nature and amount of any significant re measurement of amounts reported in prior interim periods of the current financial year. 3. 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. 3.1 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 At end of the current interim At end of the immediately

5 financial position period preceding financial year Statement of comprehensive income Statement of changes in equity Statement of cash flows For: the current interim period; and cumulative for year-todate (where the interim is not on a year-to-date basis) For comparable interim periods; same interim period; and cumulatively for yearto-date of the immediately preceding financial year Cumulatively for year-to-date Year-to-date of the immediately preceding financial year Cumulatively for year-to-date Year-to-date of the immediately preceding financial year Illustration 1 ABC Ltd. 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 The relevant dates for which each interim financial statement needs to be prepared for the current period and for the comparative period(s) are: Statement Current interim period Comparative Statement of financial 30 September March 2009 position as at Statement of 30 September September 2008 comprehensive income Statement of changes in 30 September September 2008 equity Statement of cash flows 30 September September Tax Charge Income tax expense should be accrued using the tax rate that would be applicable to expected total annual earnings (the estimated average annual effective income tax rate applied to the pre tax income of the interim period).

6 3.3 Use of estimates The measurement procedures to be followed in an interim financial report 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: Full stock-taking and valuation procedures may not be required for inventories at interim dates, although it may be done at financial year-end. It may be sufficient to make estimates at interim dates based on sales margins. Contingencies: The measurement of contingencies may involve the opinions of legal experts or other advisers. Formal reports from independent experts are sometimes obtained with respect to contingencies. Such opinions about litigation, claims, assessments, and other contingencies and uncertainties may or may not also be needed at interim dates. 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. 4. IFRIC 10 - Interim Financial Reporting and Impairment 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 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 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.

7 5. Restatement of previously reported interim periods A change in accounting policy, other than one for which the transition is specified by a new IFRS, shall be reflected by: (a) restating the financial statements of prior interim periods of the current financial year and the comparable interim periods of any prior financial years that will be restated in the annual financial statements in accordance with IAS 8; or (b) when it is impracticable to determine the cumulative effect at the beginning of the financial year of applying a new accounting policy to all prior periods, adjusting the financial statements of prior interim periods of the current financial year, and comparable interim periods of prior financial years to apply the new accounting policy prospectively from the earliest date practicable. 6. IFRS vis-a-vis IGAAP IFRS IAS 34 - Interim Financial Reporting Indian GAAP AS 25 - Interim Financial Reporting AS 25 is similar to IAS 34 and there are no material differences between the two standards