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INTERIM FINANCIAL REPORTING
Interim financial reporting means the
preparation and
presentation of financial statements for a period of less than one

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.

Interim financial reports may be presented monthly, quarterly

or semiannually. Quarterly interim reports are the most
common

However, 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

PAS 34 does not mandate which entities are required to publish

interim financial reports, how frequently, or how soon after the
end of an interim period.

Philippine jurisdiction
The Securities and Exchange Commission and Philippine Stock
Exchange require entities covered by the reportorial
requirements of Revised Securities Act to file quarterly interim
financial reports within 45 days after the end of each of the
first three quarters.

The SEC also requires entities covered by the Rules on

Commercial Papers and Financing Act to file quarterly financial
reports within 45 days after each quarter-end.
Entities that provide interim financial reports in conformity
with Philippine Financial Reporting Standards shall conform

to the recognition, measurement and disclosure requirements

set out in the standard.

227
 on
interim financial reporting
Two views

that each interimperiod is an

The integral view is integral
part of
the annual accounting period.

Under the integral view, annual operating expenses

then allocated to the interim periods are
estimated and based on
sales volume.
forecasted revenue or

In other words, incurredwhich clearly benefitthe

costs
entire
year are allocated to the interim periods benefited.
Estimation and allocation are necessary to avoid creating
misleading fluctuations in interim period income

result to interimincome
Using the integral view would which
would be more indicative of the annual income and thus
useful
in predicting future operations and making informed decisions.
is that each interim
The independent view period is
considered a discrete or separate accounting period with status
equal to a fiscal year.

Thus, no estimations or allocations are made for interim

purposes, unless such estimations or allocations are allowed
for annual reporting.

The same expenserecognition rules shall apply as under annual

reporting and no special interim accruals or deferrals are
permitted.

In other words, annual operating expenses are

recognized in
the interim period when incurred, irrespective of the number of
interim periods benefited, unless deferral or accrual would be
allowed in the annual financial statements.

Which view is followed in practice?

PAS 34 on interim financial reporting does not mention about

the two views.

Essentially, the standard adopts a mix of the integral and

independent views.

228
 of an
interim financial report
34, paragraph 8, provides that an interim financial
PAS
shall include, at a
repor
minimum, the following

Condensed statement of financial position

b.
Condensed.statement statementof comprehensive income
Condensed statement of changes in equity
C.

d.
Condensed statement of cash flows

Selected explanatory notes

e.

Paragraph 8A provides that an entity can present items of

or loss in a separate condensed income statement.
profit

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.

In other words, 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 the entity's most recent annual financial
in

statements is required but there is no requirement to include

greater detail unless this 1s specifically required.

Disclosure of compliance with PFRS

PAS 34, paragraph 19, provides that if an entity's interim

financial report is in compliance with Philippine Financial
Reporting Standards, such fact shall be disclosed.

An entity shall not describe an interim financial report as

complying with PFRS unless it complies with all of the
requirements of each applicable Philippine Financial
Reporting Standard.

229
 Selected explanatory notes

The selected explanatory notes are designed

transactionsprovide
to
an explanation of significant eventsand
since the last annual financial statements. arising
PAS 34 assumes thatfinancial statement users have an
to the entity's most recent annual report. access

As a result, the standard reiterates that it is a

to provide the same notes in the interim financialsuperfluity
report that
appeared in the most recent annual financial report.

Examples of disclosures required in a

condensed interim
financial report include:

a. Writedown of inventories to net realizable value andthe

reversal of such a writedown

b. Recognition of a loss from the impairment

of property, plant
and equipment and intangible assets and the reversal
of
such an impairment loss
C. The reversal of any provisions for the costs of
restructuring
d. Acquisitions and disposal of items of property, plant and
equipment

e. Commitments for the purchase of property, plant and

equipment
f. Litigation settlements

g. Corrections of prior period errors in

previously reported
financial data

h. Any debt default or any breach of a debt covenant that has

not been corrected subsequently

i. Related party transactions

j. Changes in economic circumstances that affect fair value of
financial asset and financial liability.
k. Change in the classification of financial asset
1.
Contingent liabilities and contingent assets
230
Presentation of comparativeinterim statements
1.
Statement of financial position
Statement of financial
a. position at the end of current
interim period

b. Comparative statement of financial

position at the end
of preceding year.

Income statement
2.

Income statement for

a. the current interim. period
Income statement
b. cumulatively for the current financial
year to date
Comparative
C.
income statement for the comparable
interim period of the preceding year
d. Comparative income statement
cumulatively for the
comparable financial year to date of the preceding year

3. Statement of comprehensive income

a. Statement of comprehensive income for the current

interim period
b. Statement of comprehensive income cumulatively for
the current financial year to date
C. Comparative statement of comprehensive income for
the comparable interim period of the preceding year
d. Comparative statement of comprehensive income
cumulatively for the comparable financial year to date
of the preceding year

4. Statement of changes in equity

a. Statement of changes in equity cumulatively for the

current financial year to date

b. Comparative statement of changes in equity for the

comparable financial year to date of the preceding year

5. Statement of cash flows

a. Statement of cash flows cumulatively for the current

financial year to date

b. Comparative statement of cash flows for the comparable

financial year to date of the preceding year

231
Illustration - Half-yearly

If an entity publishes interim financial reports half-ve.

the following comparative financial statements are presented
mearly,
on June 30, 2020:

Statement of financial position:

June 30, 2020 December
On
81, 2019
Statement of comprehensive income:
June 30, 2020
6 months ending June 30, 2019
Statement of cash flows:
June 30, 2020
6 months ending June 30, 2019
Statement of changes in equity:
6 months ending June 30, 2020 June 30, 2019

Another illustration - Quarterly

If an entity publishes interim financial reports quarterly, the

following comparative financial statements are included in the
quarterly interim financial report on June 30, 2020:

Statement of financial position:

On June 30, 2020 December 31, 2019
Statement of comprehensive income:
3 months ending June 30, 2020 June 30, 2019
6 months ending June 30, 2020 June 30, 2019
Statement of cash flows:
6 months ending June 30, 2020 June 30, 2019

Statement of changes in equity:

6 months ending June 30, 2020 June 30, 2019

232
Inventories

PAS 34 provides
Paragraph 25 of Appendix B offinancial that
reporting inventories
by the
are measured for interim
same
principles as at financial year end.
This simply means that inventories
shall be measured
at the
net realizable value even for interim
lower of cost or purposes.
The cost of the inventory may be estimated using the
gross
profit method or retail inventory method.

Full inventory and valuation procedures

are not
requiredfor
inventories at interim date.

lower than
Accordingly, if the net realizable value is cost, a
loss on inventory writedown shall be
recognized regardless
of whether the writedown is temporary or nontemporary.

PAS 34, paragraph 17, requires disclosure of thewritedownof

inventories to net realizable value and the reversal of such
writedown in a later interim period.

The net realizable value of inventories is determined by

reference to selling prices and related cost to complete and
dispose at interim dates.

234
Seasonal, cyclical or occasional revenue
be

anticipated or deferred as of an interim date

if anticipation
deferral would not be appropriate at the end of the entity's
reporting period.
dividend revenue, royalties and government grants
Thus,
shall be recognized in the interim period when they occur.

dividend revenue is
For example, not recognized until
declared because even when highly predictable based on past
experience, the dividend is not an obligation of the entity
until it is legally declared.

Uneven costs

Costs that are incurred unevenly during an entity's financial

year
shall be anticipated or deferred for interim purposes
only if it is also appropriate anticipate or defer that type of
to

cost at the end of the financial year.

For example, a provision for warranty is recognized at

interim date because the entity has no realistic alternative
but to make a transfer of economic benefits as a result of an

event that has created a legal or constructive obligation.

However, the cost of a planned major periodic maintenance

or overhaul that is expected to occur late in the year is not
anticipated for interim purposes unless an event has caused
the entity to have a legal or constructive obligation.

Expenditure for advertising is not deferred but recognized

because it is
as expense in the interim period it is incurred
not appropriate to defer such cost at year-end.

Year-end bonuses

The nature of vear-end bonuses varies widely. Some are

earned simply by continued employment during a time
period. Some bonuses are earned based on a monthly,
quarterly or annual measure of performance.

Some bonuses may be purely discretionary, contractual.or

based on years of historical precedent.

235
Recognition of bonus
A bonus is antitipated for interim purposes if and
Only if.

8. The bonus is a legal obligation or past practice Would

the bonus a constructive obligation for which the Make
has no realistic alternative but to make the Entity
payment.
b. A reliable estimate of the obligation can be mad.

Irregular costs

Certain costs are expected to be incurred irregularly

during
the financial year, such as charitable contribution
and
employee training cost.

Such costs are generally discretionary and even though

they
are planned shall not be anticipated as of an interim
date
simply because the costs have not yet been incurred

Depreciation and amortization

Depreciation and amortization for an interim period 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

Paid vacation and holiday leave shall be accrued for
interim
purposes because these are enforceable as legal
commitments.

Gain and loss

Gain or loss from disposal of property, gain or loss from

discontinued operation and other gain or loss shall not be
allocated over the interim periods.
The gain is reported in the interim period when realized
and the loss is reported in the
interim period when incurred.

236
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 17-10 Multiple choice (PAS 34)
QUESTION
regarding interim reporting?
1. Which statement is true
required for interim financial
a.
The independent view is
statements.
on 8 quarterly
Interim reports are required basis.
b. Interim reports are
not required.
Interim reports require the preparation
of only
statement of earnings and a statement of financial
position.

2. An interim financial report contains

a. A complete set of financial statements

b. A condensed set of financial statements
Either a complete set or condensed set of financial
statements
d. Neither a complete set nor condensed set of financial
statements

3. Which basic financial statements are prepared aS

minimum for interim financial reporting?

a. Statement of financial position and income statement

b. Statement of financial position, income statement and
statement of comprehensive income
Statement of financial position, statement of
comprehensive income and statement of cash flows

A Statement of financialposition, statement off

comprehensive income, statement of cash flows and
statement of changes in equity

4. Publicly traded entities are encouraged to provide

interim financial reports
of
At least at the end of the half year and within 60 days
of the end of the interim period.
b. Within a month of the half year-end.
C. On a quarterly basis.
d. Whenever the entity wishes.

244
 5. An
entity is proparing interim financial statements for
months ended
June 30, 2018. In the interim financial
six
statements for six months, a statement of financial
position on June. 30, 2018 and a statement of
comprehensive income for six months ended June 30, 2018
shall be presented. In addition, all of the following shall
be presented, except

Statement of financial position on June 30, 2017

Statement of financial position on December 31, 2017
Statement of comprehensive income for six months
ended June 30, 2017
d. Statement of cash flows for six months ended June
30, 2017

ANSWER 17-10

1. C

3. d

4, a

5. 8

245
 Multiple choice (IFRS)
QUESTION 17-11

1. Interim financial reports shall be published

Once a year at any time

during the year.
a.
b. Within a month of the half year-end.
On a quarterly basis.
Whenever the entity wishes.

2. If an entity does not prepare interim financial reports

a. The year-end financial statements are deemed
not to
comply with IFRS.
The year-end financial statements' compliance with
IFRS is not affected.
C. The year-end financial statements shall not be
acceptable under local jurisdiction.
d. Interim financial reports shall be included in the
year-end financial statements.

3. Interim financial reports shall include as a minimum

A complete set of financial statements.

A condensed set of financial statements and selected
notes.
c. A condensed statement of financial position and an
income statement.
d. A condensed statement of financial position, income
statement and statement of cash flows.

4. An interim financial report shall include as a minimum

all of the following components, except

a. Condensed statement of financial position and

statement of comprehensive income
b. Condensed statement of cash flows
Condensed statement of changes in equity
@: Accounting policies and explanatory notes

5. There is a presumption that anyone reading interim

financial reports shall
a. Understand all International Financial Reporting
Standards.
Have access to the records of the entity.
Have access to the most recent annual report.
Not make decisions based on the report.

246
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ANSER. 3*.
 choice (AICPA Adapted)
QUESTION 17-12 Multiple

1. Interim financial statements are usually presented On a

Monthly basis
Quarterly basis

d. Nine-month basis

2. For interim reporting, an inventory loss from a market

shall be recognized as a
decline in the second quarter
loss

8. In the fourth quarter

b. Proportionately in each of the second, third and fourth
quarters
C. Proportionately in each of the first, second, third and
fourth quarters

d In the second quarter

3. For external reporting purposes, it is appropriate to use
estimated gross profit rate to determine the cost of goods
sold for

Interim reporting
b. Year-end reporting
C. Interim reporting and year-end reporting
d. Neither interim reporting nor year-end reporting

4. For interim financialreporting, an expropriation gain

occurring in the second quarter shall be

a. Recognized ratably over the last three quarters

first
b. Recognized ratably over all four quarters with the
quarter being restated
¢ Recognized in the second quarter
d. Disclosed in the second quarter

248
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 income tax expense for the third quarter interim
8. How is
period computed?
the thirdquarter
rate multiplied by pretax
a. The annual
earnings. the first three quarters based
The estimated tax for
less a similar estimate for the first
on an annual rate

two quarters.
the third
C.
The rate applicable during quarter
the third quarter
multiplied by four times pretax
earnings.
d. One.half of the difference between total estimated
and the income tax for the
annual income tax expense
first two quarters.

9. Conceptually, interim financial statements can be

described as emphasizing

Timeliness over reliability

b. Reliability over relevance
C.
Relevance over comparability
d. Comparability over neutrality

10. Interim financial reporting should be viewed

a. As a special type of reporting that need not follow

financial reporting standards.
b. As useful only if activity is evenly spread throughout
the year so that estimates are unnecessary.
of an annual period.
2. As reporting tor ana sntarars
separate baco
accounting period.

ANSWER 17-12

b 6. b
d 7. C

8. b

9. a

d 10.

250