CHAPTER 19 – INTERIM FINANCIAL REPORTING

INTERIM FINANCIAL REPORTING

• Preparation and presentation of financial statements for a period of less than one year
• PAS 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.
• May be presented monthly, quarterly o semiannually
• Quarterly interim reports are the most common.
• Publicly traded entities are encouraged to provide interim financial reports at least semiannually
and such reports are to be made available not later than 60 days after the end of interim period.

Frequency of interim reporting

• It is not mandated which entities are required to publish interim financial reports, how frequently,
or how soon after the end of an interim period.

Philippine jurisdiction
• Securities and Exchange Commission (SEC) and Philippine Stock Exchange (PSE) require entities
covered by the reportorial requirements of Revised Securities Act to file a quarterly interim
financial report within 45 days after the end of the first three quarters
• SEC requires entities covered by the Rules on Commercial papers and Financing Act to file
quarterly financial reports within 45 days after each quarter-end.

Components of an interim financial report

• Condensed statement of financial position
• Condensed statement of comprehensive income
• Condensed statement of changes in equity
• Condensed statement of cash flows
• Selected explanatory notes

• An entity can present items of profit or loss in a separate condensed income statement
• Nothing in the standard is intended to prohibit or discourage an entity from publishing a complete
set of financial statements, rather than condensed financial statements and selected explanatory
notes.
• PAS 34 allows an entity to publish a set of condensed financial statements or complete set of
financial statements in the interim financial report.
• “Condensed” means that each of the headings and subtotals 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.

DISCLOSURE OF COMPLIANCE WITH PFRS

• If an entity’s interim financial report is in compliance with PFRS such fact shall be disclosed

SELECTED EXPLANATORY NOTES

• Designed to provide an explanation of significant events and transactions arising since the last
annual financial statements.
 • Standard reiterates that it is a superfluity to provide the same notes in the interim financial report
that appeared in the most recent annual financial report.

PRESENTATION OF COMPARATIVE INTERIM STATEMENTS

1. Statement of financial position
a. End if current interim period
b. Comparative, at the end of preceding year
2. Income statement
a. Current interim period
b. Cumulatively, current financial year to date
c. Comparative, comparable interim period of the preceding year
d. Comparative, cumulatively for the comparable financial year to date of the preceding year
3. Statement of comprehensive income
a. Current interim period
b. Cumulatively, current financial year to date
c. Comparative, comparable interim period of the preceding year
d. Comparative, cumulatively for the comparable financial year to date of the preceding year
4. Statement of changes in equity
a. Cumulatively, current financial year to date
b. Comparative, comparable financial year to date of the preceding year
5. Statement of cash flows
a. Cumulatively, current financial year to date
b. Comparative, comparable financial year to date of the preceding year

BASIC PRINCIPLES
1. Entity shall apply the same accounting policies in the interim financial statements as are applied
in the annual financial statements.
Measurements for interim reporting purposes shall be made on a year to date basis.
2. Revenues from products sold or services rendered are generally recognized for interim reports on
the same basis as for the annual period.
3. Costs and expenses are recognized as incurred in an interim period.
a. Expenses associated directly with revenue – matched against revenue in those interim
periods in which the related revenue is recognized.
b. Expenses not associated directly with revenue – recognized in interim periods as incurred
or allocated over the interim periods benefited.
4. If business is highly seasonal, in addition to the current interim period financial statements, the
entity is encouraged to disclose financial information:
a. For the latest 12 months
b. Comparative information for the prior comparable 12-month period
5. Preparation of interim financial reports generally requires a greater use of estimation than annual
financial reports.

INVENTORIES
• Measured by the same principles as at financial year-end
• Shall be measured at the lower of cost or net realizable value even for interim purposes
• Cost of inventory may be estimated using the gross profit method or retail inventory method
• Full inventory and valuation procedures are not required for inventories at interim date
 • If net realizable value is lower than cost, a loss on inventory writedown shall be recognized
regardless of whether the writedown is temporary or nontemporary
• Disclosure of the writedown of inventories to net realizable value and the reversal of such
writedown in a alter interim period is required.

SEASONAL, CYCLICAL OR OCCASIONAL REVENUE

• Shall not be anticipated or deferred as of an interim date if anticipation or deferral would not be
appropriate at the end of the entity’s reporting period.
• Dividend revenue, royalties and government grants shall be recognized in the interim period when
they occur.

UNEVEN COSTS
• Shall be anticipated or deferred for interim purposes only if it is also appropriate to anticipate or
defer that type of cost at the end of the financial year.

YEAR-END BONUSES
A bonus is anticipated for interim purposes if and only if:
• The bonus is a legal obligation or past practice would make the bonus a constructive obligation
for which the entity has no realistic alternative but to make the payment.
• A reliable estimate of the obligation can be made.

IRREGULAR COSTS
• Are generally discretionary
• Shall not be anticipated as of an interim date simply because the costs have not yet been incurred

DEPRECIATION AND AMORTIZATION

• Shall be based only on assets owned during that interim period
• Asset acquisitions or dispositions planned for later in the financial year shall not be taken into
account

PAID VACATION AND HOLIDAY LEAVE

• Shall be accrued for interim purposes because these are enforceable as legal commitments

GAIN AND LOSS

• Shall not be allocated over the interim periods
• Gain is reported when realized
• Loss is reported when incurred

INCOME TAX
• Interim period income tax expense shall reflect the same general principles of income tax
accounting applicable to annual reporting.
• Interim period income tax expense is accrued using the annual effective income tax rate applied
to the pretax income of the interim period.
• If the financial reporting year end and the income tax year differ, the income tax expense for
interim periods of that financial year is measured using separate effective tax rate for each of the
tax years applied to the portion of the pretax income earned in each of those tax years.
 • Effective tax rate of a particular tax year is applied to the pretax income of the interim period in
the same tax year.

CHANGE IN ACCOUNTING POLICY

• A change in accounting policy shall be reflected by restating the financial statements of prior
interim periods of the current year and the comparable interim periods of the prior financial year.
• This is to ensure that a single accounting policy is applied to a particular class of transactions
throughout the entire financial year.

Transaction or Event Accounting treatment

Write-downs of inventories to NRV or reversal thereof
Impairment loss and reversal thereof
Gains and losses on changes in fair values, exchange rates
and other market-related factors
Contingent rent
Dividend income
Dividend declared
Depreciation or amortization
Income tax expense
Year-end bonuses/compensated balances
Changes in accounting estimates (e.g., changes in
provisions, bad debts, depreciation methods, etc.)
Changes in accounting policy
Correction of prior period error
Recognized in full in the interim period
Recognized in full in the interim period
Recognized in full in the interim period
Recognized in full in the interim period
Recognized in full in the interim period
Recognized in full in the interim period
Allocated to the periods benefited, except when the units of
production method is used
Allocated to the periods using the best estimate of the
weighted average annual income tax rate expected for the
full financial year.
Allocated to the periods when the entity has obligation to
pay for them
Accounted for prospectively in the interim period where the
changes occurs. Interim financial reports in previous periods
are not restated.
Accounted for retrospectively as at the beginning of the
earliest comparative period presented, unless it is
impracticable or a transitional provision requires otherwise.
Accounted for retrospectively.