You are on page 1of 0

SESSION 35 IAS 34 INTERIM FINANCIAL REPORTING

Accountancy Tuition Centre (International Holdings) Ltd 2008 3501


Overview
Objective
To set out the principles that entities should follow in drafting interim
financial reports.





INTRODUCTION
Objective
Scope
Definitions


CONTENT OF AN
INTERIM
FINANCIAL
REPORT


Minimum components
Consolidation
Condensed statement of financial position
Condensed statement of comprehensive
income
Condensed statement of cash flows
Changes in equity
Selected explanatory notes

RECOGNITION AND
MEAUREMENT

IFRIC 10

General principles
Tax charge
Use of estimates
Application examples
Issue
Consensus
SESSION 35 IAS 34 INTERIM FINANCIAL REPORTING
Accountancy Tuition Centre (International Holdings) Ltd 2008 3502
1 Introduction
1.1 Objective
Timely and reliable interim financial reporting improves the ability of users
to understand an entitys capacity to generate earnings and cash flows and its
financial condition and liquidity.

Commentary
The interim financial report is intended to provide an update on the latest
complete set of annual financial statements. It focuses on new activities, events,
and circumstances and does not duplicate information previously reported.
IAS 34 prescribes:
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.

Commentary
In the interest of timeliness and cost considerations and to avoid repetition of
information previously reported, an entity may be required to or may elect to
provide less information at interim dates as compared with its annual
financial statements.
1.2 Scope
1.2.1 Entities covered
IAS 34 applies if an entity is required or elects to publish an interim financial
report in accordance with IFRS.
IAS 34 does not specify:
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.
Entities may be required to publish interim financial information by:
governments;
securities regulators;
stock exchanges; and
accountancy bodies.

Commentary
IASB strongly encourages governments, securities regulators, stock exchanges,
international bodies and accountancy bodies to require companies whose debt or
equity securities are publicly traded to provide interim financial reports that
conform to the recognition and measurement criteria in IAS 34.
SESSION 35 IAS 34 INTERIM FINANCIAL REPORTING
Accountancy Tuition Centre (International Holdings) Ltd 2008 3503
If an entitys interim financial report is described as complying with IFRS, it
must comply with all of the requirements of IAS 34. This fact must be disclosed.
Illustration 1

Note 1 Basis of Accounting

UBS AGs (UBS) consolidated financial statements (Financial
Statements) are prepared in accordance with International
Financial Reporting Standards (IFRS) and stated in Swiss francs
(CHF). These Financial Statements are presented in accordance
with IAS 34 Interim Financial Reporting. In preparing the interim
Financial Statements, the same accounting principles and
methods of computation are applied as in the Financial
Statements on 31 December 2006 and for the year then ended
except for the changes set out below.
The interim Financial Statements are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of
the financial position, results of operations
and cash flows for the interim periods have been made.
These interim Financial Statements should be read in conjunction
with the audited Financial Statements included in the UBS
Financial Report 2006.
Third Quarter Financial Report 2007



1.2.2 Disclosures encouraged
IAS 34 encourages publicly traded entities to provide interim financial
reports that conform to the recognition, measurement, and disclosure
principles set out in the standard.
Specifically, publicly traded entities are encouraged:
to provide interim financial reports at least as of the end of the first
half of their financial year; and
to make their interim financial reports available not later than 60
days after the end of the interim period.
1.3 Definitions
Interim period is a financial reporting period shorter than a full financial year.
Interim financial report means a financial report containing either a complete
set of financial statements (as described in IAS 1) or a set of condensed
financial statements (as described in IAS 34) for an interim period.
SESSION 35 IAS 34 INTERIM FINANCIAL REPORTING
Accountancy Tuition Centre (International Holdings) Ltd 2008 3504
2 Content of an interim financial report
2.1 Minimum components
Interim financial reports should include (at a minimum):
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 cash flows;
a condensed statement of changes in equity;
selected explanatory notes.

Commentary
Although other IFRSs specify disclosures that should be made in financial statements,
these disclosures are not required in an interim financial report that includes only
condensed financial statements and selected explanatory notes. If a complete set, they
must comply with all relevant IFRSs.
2.2 Consolidation
An interim financial report is prepared on a consolidated basis if the entitys most
recent annual financial statements were consolidated statements.

Commentary
The parents separate financial statements are not consistent or comparable
with the consolidated statements in the most recent annual financial report.
If an entitys annual financial report included the parents separate financial
statements in addition to consolidated financial statements, IAS 34 neither
requires nor prohibits the inclusion of the parents separate statements in the
entitys interim financial report.
2.3 Condensed statement of financial position
A statement of financial position should include each of the major
components of:
assets;
liabilities; and
equity,
that were presented in its most recent annual statement of financial position.
SESSION 35 IAS 34 INTERIM FINANCIAL REPORTING
Accountancy Tuition Centre (International Holdings) Ltd 2008 3505

Illustration 2

CONDENSED BALANCE SHEET


Reviewed
28 Feb 2007
R million
Unaudited
28 Feb 2006
R million
Assets
Non-current assets 1 370 1 310
Property, plant and equipment 529 427
Goodwill 347 353
Intangible assets 313 351
Investments and loans 111 110
Interest in associate company 23 17
Interest in joint venture 8 8
Deferred taxation 39 44
Current assets 9 180 7 954
Inventories 1 304 1 078
Trade and other receivables (note 4) 6 763 5 954
Financial assets 1
Taxation 35 1
Bank balances and cash 1 077 921
Total assets 10 550 9 264
Equity and liabilities
Equity and reserves
Share capital and premium 2 072 2 057
Treasury shares (11) (33)
Non-distributable and other reserves 216 172
Retained earnings 3 505 2 747
Shareholders for dividend 438 406
Shareholders equity 6 220 5 349
Non-current liabilities 1 687 1 528
Interest bearing long term liabilities 848 742
Non-interest bearing long term liability 63 103
Deferred taxation 776 683
Current liabilities 2 643 2 387
Trade, other payables and provisions (note 6) 2 169 1 969
Interest bearing liabilities 388 256
Taxation 86 162
Total equity and liabilities 10 550 9 264


REVIEWED INTERIM RESULTS FOR THE SIX MONTHS ENDED 28 FEBRUARY 2007



SESSION 35 IAS 34 INTERIM FINANCIAL REPORTING
Accountancy Tuition Centre (International Holdings) Ltd 2008 3506
2.4 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.
2.5 Condensed statement of cash flows
A statement of cash flows should include the three major subtotals of cash
flows required by IAS 7 Statement of Cash Flows.
2.6 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.
2.7 Selected explanatory notes
The notes should include an explanation of events and changes 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.
The following should be disclosed:
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 operations;
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;
dividends paid;
segment information (if required by IFRS 8 Operating Segments to
be disclosed in the entitys 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 the last annual reporting period; and
the nature and amount of any significant re measurements of amounts
reported in prior interim periods of the current financial year.
SESSION 35 IAS 34 INTERIM FINANCIAL REPORTING
Accountancy Tuition Centre (International Holdings) Ltd 2008 3507
Entities are encouraged to provide:
a discussion of significant changes in business trends (e.g. in
demand, market shares, prices, and costs);
a description of significant new commitments such as for capital spending;
a discussion of prospects for the full current financial year of which
the interim period is a part.
Illustration 3
Consolidated interim cash flow statement

Six months ended 30 June
Note 2005 2004
Cash flows from operating activities
Cash generated from operations x x (x)
Interest paid (x) (x)
Income tax paid (x) (x)
Net cash used in operating activities (x) (x)

Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired x (x) (x)
Purchases of property, plant and equipment (PPE) x (x) (x)
Proceeds from sale of PPE x x x
Purchases of intangible assets x (x) (x)
Purchases of available-for-sale financial assets x (x)
Proceeds from sale of available-for-sale financial assets x x
Proceeds from sales of investments in other companies x x
Purchase of short-term securities x (x)
Loans granted to related parties x (x) (x)
Loan repayments received from related parties x x x
Interest received x x
Dividends received x x
Net cash generated from investing activities x x

Cash flows from financing activities
Proceeds from borrowings x x
Repayments of borrowings (x) (x)
Dividends paid to Companys shareholders (x) (x)
Dividends paid to minority interests (x) (x)
Net cash (used in)/generated from financing activities (x) x

Net increase in cash and bank overdrafts x x
Cash and bank overdrafts at beginning of period x x
Exchange gains/(losses) on cash and bank overdrafts (x) (x)
Cash and bank overdrafts at end of period x x x



SESSION 35 IAS 34 INTERIM FINANCIAL REPORTING
Accountancy Tuition Centre (International Holdings) Ltd 2008 3508
3 Recognition and measurement
3.1 General principles
Entities should apply the same accounting recognition and measurement
principles in interim financial report as are applied in the preparation of
annual financial statements.

Commentary
So, for example, an entity must apply the same impairment testing criteria at
an interim date as it would at the end of its financial year.
Measurements for interim reporting purposes are made on a year-to-date basis, as
the frequency of reporting should not affect the measurement of annual results.

Commentary
See IFRIC 10 later in this session.
The entity should apply the basic principles from the Framework in the
recognition of assets, liabilities, income, and expenses.

Commentary
Costs that, by their nature, would not qualify as assets at the end of a
financial year would not qualify at interim dates either.
A liability at the end of an interim reporting period must represent an existing
obligation at that date, just as it must at the end of an annual reporting period.
3.2 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).
3.3 Use of estimates
The measurement procedures should be designed to ensure that information is
reliable and relevant to an understanding of the financial position or
performance of an entity. Preparation of interim financial reports generally
will require a greater use of estimation methods than annual financial reports.

Commentary
The Framework recognises the need for trade-offs. Some degree of
reliability may have to be sacrificed to enhance relevance or timeliness.
Timeliness is particularly important for interim financial information, which
often is published more promptly than annual financial information. To
increase timeliness or reduce cost, it may be necessary to accept a lesser
degree of reliability.
SESSION 35 IAS 34 INTERIM FINANCIAL REPORTING
Accountancy Tuition Centre (International Holdings) Ltd 2008 3509
3.4 Application examples
3.4.1 Inventories
Full stocktaking and valuation procedures may not be required for inventories
at interim dates. Alternative methods might include:
estimates based on sales margins;
using representative samples.
3.4.2 Provisions
Determination of provisions (e.g. for environmental costs) may be complex,
costly and time consuming. An entity might engage outside experts to assist
in the calculations for the end of the reporting period.
Estimates at interim dates may entail a simple updating of the prior annual provision.
3.4.3 Revaluations
An entity may rely on professionally qualified valuers at the end of annual
reporting periods though not at the end of interim reporting periods.
4 IFRIC 10 Interim Financial Reporting
and Impairment

Commentary
This Interpretation considers the interaction between the recognition of
impairment losses and the requirement to use year-to-date measures in
interim financial statements.
4.1 Issue
Should impairment losses on goodwill (also investments in equity instruments
and financial assets carried at cost) recognised in an interim period be reversed if
a smaller loss (or no loss) would have been recognised, had an impairment
assessment been made only at the end of a subsequent reporting period?

Commentary
The reversal of such losses in annual financial statements is prohibited by
IAS 36 (and IAS 39).
SESSION 35 IAS 34 INTERIM FINANCIAL REPORTING
Accountancy Tuition Centre (International Holdings) Ltd 2008 3510
4.2 Consensus
Such impairment losses recognised in a previous interim period must not be
reversed.

Commentary
IFRICs prohibition gives precedence to the specific requirements of IAS 36
and IAS 39 over the more general principle in IAS 34.
This conclusion must not be extended by analogy to other areas of potential
conflict between IAS 34 and other standards.

Focus
You should now be able to:
discuss the International pronouncement on interim financial reporting;
recognise the content and format of interim financial statements (IAS 34).