Chapter 19: Interim Financial Reporting

Perspective and Issues

Interim financial reports are financial statements covering periods of less than a full financial year. Most commonly such reports will be for a period of three months (which are referred to as quarterly interim financial reports), although in many jurisdictions, tradition calls for semiannual interim financial reporting. The purpose of quarterly or other interim financial reports is to provide financial statement users with more timely information for investment and credit decisions, based on the expectation that full-year results will be a reasonable extrapolation from interim performance. Additionally, interim reports can yield significant information concerning trends affecting the business and seasonality effects, both of which could be obscured in annual reports.

The basic objective of interim reporting is to provide frequent and timely assessments of enterprise performance. However, interim reporting has inherent limitations. As the reporting period is shortened, the effects of errors in estimation and allocation are magnified. The proper allocation of annual operating expenses is a significant concern. Because the progressive tax rates of most jurisdictions are applied to total annual income and various tax credits may arise, the accurate determination of interim income tax expense is often difficult. Other annual operating expenses are often concentrated in one interim period, yet benefit the entire year's operations. Examples include advertising expenses and major repairs or maintenance of equipment, which may be seasonal in nature. The effects of seasonal fluctuations and temporary market conditions further limit the reliability, comparability, and predictive value of interim reports. Because of this reporting environment, the issue of independent auditor association with interim financial reports remains problematic.

While some national standards had long existed regarding interim financial reporting, most notably in the United States where the pertinent requirements were established in 1973, international accounting standards on this topic developed only recently. The standard on interim financial reporting was issued in February 1998.

Two distinct views of interim reporting have been advocated, particularly by US and UK standard setters, but others believe that the distinction is less meaningful than it appears at first blush. The first view holds that the interim period is an integral part of the annual accounting period (the integral view), while the second views the interim period as a discrete accounting period of its own (the discrete view). Depending on which view is accepted, expenses would either be recognized as incurred, or would be allocated to the interim periods based on forecasted annual activity levels such as sales volume. The integral approach would require more use of estimation, and forecasts of full-year performance would be necessary antecedents for the preparation of interim reports.

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Sources of IAS

IAS 1, 8, 20, 32, 34

IASC's Framework for the Preparation and Presentation of Financial Statements

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Wiley Ias 2003(c) Interpretation and Application of International Accounting Standards
WILEY IAS 2003: Interpretation and Application of International Accounting Standards
ISBN: 0471227366
EAN: 2147483647
Year: 2005
Pages: 147 © 2008-2017.
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