Interim Financial Reporting: IAS 34 Wiecek and Young IFRS Primer Chapter 28

Interim Financial Reporting Related standards IAS 34 Current GAAP comparisons Looking ahead End-of-chapter practice

Related Standards APB 28 Interim Financial Reporting

IAS 34 – Overview Objective and scope Content of an interim financial report Disclosure in annual financial statements Recognition and measurement Restatement of previously reported interim periods

IAS 34 – Objective and Scope Annual reporting Often supplemented with interim or quarterly reports Interim reporting Reports provide more relevant and timely information Often mandated by securities regulators, governments, and stock exchanges IASB encourages entities whose shares are publicly traded to provide interim information At least as of the end of the first half of the year and issue it within 60 days of this date Standard does not address how often nor how soon after the period entities should produce interim reports

IAS 34 – Objective and Scope Choice by the entity May choose not to prepare interim financial statements at all May choose to prepare them in accordance with IFRSs if they do and they describe the financial statements to be in compliance with IFRSs, the standard applies According to IAS 34, an interim financial report is defined as follows: . . . a financial report containing either a complete set of financial statements or a set of condensed financial statements for an interim period Appendices A, B, and C Accompany the standard Give numerous examples and clarifications However, they are not technically part of the standard itself

IAS 34 – Content of an Interim Financial Report Goal of interim reporting To provide information about new events and circumstances and other changes Not just replicate the information given in the annual financial statements The standard does not prohibit including a complete set of financial statements Minimum requirements mandated by the standard Minimum components of an interim financial report Form and content of interim financial statements Selected explanatory notes Disclosure of compliance with IFRSs Periods for which interim financial statements are required to be presented Materiality

IAS 34 – Content of an Interim Financial Report Minimum components of an interim financial report Required condensed statements • Statement of financial position • Statement of comprehensive income -Presented as a single statement or a separate income statement plus a statement of comprehensive income • Statement of changes in equity • Statement of cash flows In addition, selected explanatory notes must accompany the above

IAS 34 – Content of an Interim Financial Report Form and content of interim financial statements If the entity presents a full set of statements Follow IAS 1 If it presents condensed statements Entity must present at a minimum the headings and subtotals that were presented in the annual statements Basic and diluted earnings per share Presented when the entity is covered by IAS 33 Interim financial statements Based on consolidated statements where the most recent annual statements were prepared on a consolidated basis

IAS 34 – Content of an Interim Financial Report Selected explanatory notes Relevant notes unchanged from the annual report Not included Repetitive Can obscure the new and more relevant information Information is normally presented on a year-to-date basis Material disclosures • Statement that the accounting policies follows the annual report • Explanatory comments about the seasonality/cyclicality of the business • Any unusual items • Nature and amount of changes in estimates

IAS 34 – Content of an Interim Financial Report (continued list) • Changes in debt and equity securities (issue, repurchase, repayment) • Dividends paid • Segmented information including Intersegment revenues Segment profit/loss • Material subsequent events • Changes in contingent assets/liabilities Disclosure of compliance with IFRSs If the financial statements are prepared in compliance with IFRSs, this should be stated and the interim statements must also be in compliance with all IFRSs

IAS 34 – Content of an Interim Financial Report Periods for which interim financial statements are required to be presented Which statements are required to be presented?

IAS 34 – Content of an Interim Financial Report Materiality Discussed in IAS 1 and 8 Although there is no specific quantitative guidance IAS 34 notes that materiality for interim statements should be assessed based on the interim period Note that interim financials statements may have additional estimates Therefore the numbers may be a bit softer

IAS 34 – Disclosure in Annual Financial Statements Situations may arise where estimates are changed in the last quarter or final interim period Where final interim period statements are not separately presented and where the change is significant Nature and amount of change in estimate should be disclosed in the annual statements The standard goes on to cross reference and link this to IAS 8 Requires disclosure of the nature and amount of material changes in estimates

IAS 34 – Recognition and Measurement Same accounting policies as annual Entity is required to use the same accounting policies as in the year-end statements Encourages consistency Where there has been a subsequent change in accounting policies, the entity would use the newer policy Discrete versus integral The discrete approach Treats the interim period as a separate and self-standing period The integral approach Treats it as part of the annual period (i.e., as a portion of a larger period)

IAS 34 – Recognition and Measurement

IAS 34 – Recognition and Measurement Applying the Recognition and Measurement Principles

IAS 34 – Recognition and Measurement Revenues received seasonally, cyclically, or occasionally Recognized when they occur or are earned, notwithstanding their cyclical or seasonal nature May result in more revenues being recognized in one period than in another Reflects the underlying reality Supports the discrete approach Costs incurred unevenly during the financial year Costs are recognized when incurred Only capitalized when they meet the definition of an asset Also supports the discrete approach

IAS 34 – Recognition and Measurement Use of estimates Due to necessity, more estimates need to be made in an interim period An entity needs to communicate this and must take care to ensure that the information is relevant and reliable

IAS 34 – Restatement of Previously Reported Interim Periods Where there is a change in accounting policy, the comparative interim information must be restated Where it is impracticable to determine the cumulative impact, the change would be applied from the earliest date practicable

Current GAAP Comparisons Page 150 of 164 of http://www.kpmg.co.uk/pubs/IFRScomparedtoU.S.GAAPAnOverview(2008).pdf

Current GAAP Comparisons IAS 34 contemplates providing a condensed set of financial statements and does not require the presentation of a cash flow statement for the current interim period, only for the cumulative period IAS 34 precludes deferral of manufacturing cost variances expected to be absorbed by year end IAS 34 treats initial recognition of previously unrecognized taxes as an adjustment to annual effective rate used in determining the interim taxes Minimum Components of an Interim Financial Report: Section 1751 of Canadian GAAP and IAS 34 are converged, except that IAS 34 contemplates providing a condensed set of financial statements and does not require the presentation of a cash flow statement for the current interim period, only for the cumulative period. Periods For Which Interim Statements are Required: Section 1751 requires cash flow statement for current interim period including comparatives as noted above. Same Accounting Policies as Annual: With respect to interim reporting – revenue and expense recognition, IFRS views the interim period as a discrete reporting period (with certain exceptions), while US GAAP views the interim period as an integral part of an annual period (with certain exceptions). Discrete Versus Integral Approach: Section 1751 of Canadian GAAP and IAS 34 are converged, except that IAS 34 precludes the deferral, in interim periods, of manufacturing cost variances that are expected to be absorbed by year end. As well, IAS 34 treats the initial recognition of a previously unrecognized income tax asset as an adjustment to the estimated average annual effective income tax rate used in determining interim period tax expense, rather than as a separate item of the income tax expense.

Looking Ahead This topic will be dealt with in Phase C of the Financial Statement Presentation project, which has not yet begun Topics to be discussed by FASB 1. Which financial statements should be required in an interim financial report 2. Whether entities should be allowed to present the financial statements in an interim financial report in a condensed format 3. What comparative periods should be required or allowed in interim financial reports 4. Whether guidance for non-public companies should differ from guidance for public companies

End-of-Chapter Practice

End-of-Chapter Practice

End-of-Chapter Practice

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