1. MFRS 134 Interim Financial Reporting

2. Definitions
Interim period = financial reporting period < one full financial year
Interim financial report = financial report containing either a complete set of FS (as per MFRS 101) or condensed FS for an interim period

3. Content of interim financial statements
Purpose is to provide an update on the latest complete set of FS
Does not duplicate previous information
Entities can either present:
A complete set of FS
Condensed FS

4. Content of interim financial statements
A complete set of FS
Per MFRS 101
Statement of Financial Position
Statement of Profit or Loss & other comprehensive income
Statement of cash flows
Statement of changes in equity
Notes to the FS

5. Content of interim financial statements
Condensed FS – as a minimum, must have:
Condensed statement of financial position
Condensed statement of profit & loss and other comprehensive income (presented as a single statement or separately)
Condensed statement of changes in equity
Condensed statement of cash flows
Selected explanatory notes
Should also include:
Headings & subtotals that were included in the recent annual FS
Selected explanatory notes as required by the standard
Basic & diluted EPS
Additional line items or notes – if significant

6. Reporting period for interim financial statements
Can be half yearly or quarterly
Reports cover current period, year to date, comparatives FS
Current period
Comparative period
Statement of financial position
End of current interim period
End of PY
Statement of profit
or loss & other comp
Income
Current interim period
Current FY to date
Comparable interim period for PY
Statement of changes
in equity
Comparative YTD figure for PY
Statement of cash flows

7. Reporting period for interim financial statements
E.g. XYZ financial year end = 31 December
Publishes half yearly financial reports
1st set for FY X4 will be for 6 months, i.e. Jan – June X4 FS
Current period
Comparative period
Statement of financial position
At 30 June X4
At 31 Dec X3
Statement of profit
or loss & other comp
Income
6 months ending 30 June X4
6 months ending 30 June X3
Statement of changes
in equity
Statement of cash flows

8. Reporting period for interim financial statements
E.g. XYZ financial year end = 31 December
Publishes quarterly financial reports
Interim report for 2nd quarter, i.e. April X4 – June X4: FS
Current period
Comparative period
Statement of financial position
At 30 June X4
At 31 Dec X3
Statement of profit
or loss & other comp
Income
3 months ending
30 June X4
6 months ending
3 months ending 30 June X3
30 June X3
Statement of changes
in equity
Statement of cash flows

9. Selected explanatory notes
Will focus on significant updates and changes in financial position & performance since last annual reporting date
Minimum info to be disclosed:
Statement: accounting policies & methods of computation were the same as the recent annual FS.
Any changes, describe the nature & effect of the change
If audit report for previous annual FS were qualified
Disclose qualification
Current status of the matter giving rise to qualification
Explanatory comments about the seasonality or cyclicality of interim operations

10. Selected explanatory notes
Minimum info to be disclosed (Contd.):
Nature & amount of items (affecting FS items) which are unusual because of their nature, size & incidence
E.g. Correction of prior period errors
Nature & amount of changes in estimates of amounts reported in prior interim periods/FY’s – if they have a material effect in current interim period
E.g. Writedown of inventories to NRV & reversal of such writedown
E.g. recognition of impairment loss on PPE & other assets, & reversal of such loss
E.g. reversal of any provisions for restructuring costs
Issuance, cancellations, repurchases, resale & repayments of debt & equity securities

11. Selected explanatory notes
Minimum info to be disclosed (Contd.):
Dividends paid, for ordinary and other shares
Segment revenue (to external customers & intersegment revenues), segment results, & other info (if entity is required to disclose segment by MFRS 8)
Material events subsequent to the end of interim period that have not been reflected in the interim FS
E.g. Acquisitions/disposals of PPE (which are significant)
Related party transactions

12. Selected explanatory notes
Minimum info to be disclosed (Contd.):
Effect of changes in the entity composition during interim period
Business combinations
Acquisition/disposal of subsidiaries/LT investments
Restructuring
Discontinuing operations
Changes in contingent liabilities/assets since last annual reporting period
E.g. commitments for purchase of PPE
E.g. litigation settlements
E.g. loan default or breach of loan agreement that has not been remedied before reporting period

13. Disclosure of compliance with MFRS
Compliance with MFRS standards should be disclosed
But must comply with ALL the requirements of each standard

14. Factors to be considered in preparing interim FS
Materiality
Recognition & measurement
Accounting policies
Seasonal, cyclical or occasional revenue & costs

15. Materiality Assessed in relation to interim period financial data
If an estimate of an item reported in an interim report has significantly changed during the final interim period
But no separate financial report is published for final interim period..
The nature & amount of the change should be disclosed in the annual FS

16. Recognition & measurement
Principles are the same as for annual FS
No retrospective adjustments required if estimates are changed in the interim period
Depreciation/amortisation
Does not take into consideration assets to be acquired in the following period
Calculated based on assets in use during the interim period

17. Recognition & measurement
Impairment loss
Review carried out at end of interim period, but does not require detailed calculations
If impairment loss estimates changes in subsequent period, original estimate is changed.
No retrospective adjustment required

18. Recognition & measurement
Tax expense
Based on best estimate of weighted average annual income tax rate expected for the full FY
If estimate of annual tax rate changes, income tax expense for subsequent period is adjusted.
Sometimes an entity may estimate a loss for the whole year, but profit for a particular interim period
E.g. ABZ earns profit of RM2m in 1st quarter but expects to incur losses of RM6m in each of the next 3 quarters
RM’000 Q1 Q2
YTD
30/6 Q3 Q4
Annual
Profit
2,000
(6,000)
(4,000)
(16,000)
Tax 25%
(500)
1,500
1,000
4,000
Tax credits

19. Recognition & measurement
Research & development
Capitalisation of R&D costs has to be determined at the end of each interim period
Costs are not deferred to wait for future information to determine whether development costs meet the definition of an asset (e.g. recoverability of costs, future economic benefits)

20. Recognition & measurement
Inventories
Inventory quantities (closing stock) need to be determined at the end of each interim period
Usually stock counts are held at the year end
To save cost & time, estimates are used to measure inventories at interim periods
NRV is determined by reference to the selling price & related costs to complete & sell
If at subsequent interim period the NRV has changed, a reversal of write down is done only if appropriate to do so at the end of the FY

21. Recognition & measurement
Inventories (Contd.)
ABE prepares quarterly interim reports
FYE: 31/12/X4
Q2 ended 30.6.X4, the cost of the inventory was RM880,000 & NRV was RM700,000
All of these inventories remain unsold in the next quarter & the NRV of these inventories was determined to be RM990,000 as at 30/9/X4
Reversal of write-down of RM180,000 is not done in Q3 unless it can be appropriate at 31/12/X4.

22. Recognition & measurement
Foreign currency translation gains/losses
Measured the same way as for FYE
No deferral of gains/losses in anticipation of changes in future exchange rates
Actual or average or closing rates are used to translate the items in the FS
Applicable rates are those prevailing for that particular period

23. Accounting policies
Must be the same as for annual FS
Changes in policy after the last FYE  new policy should be applied for the interim period
Restate FS of prior interim periods of the current FY & comparative interim periods of PY
If impracticable to do determine the cumulative effect at the beginning of the FY (by applying new policy to ALL prior periods) 
Adjust the FS of prior periods of current FY & comparative interim periods of PYs prospectively from earliest date practicable

24. Seasonal, cyclical or occasional revenue & costs
Revenue earned in a particular period is recognised in that period
No deferral or anticipation of revenue (to smooth out earnings over the year)
Dividend income may be received in the 1st interim period for a FY – should be recognised accordingly

25. Seasonal, cyclical or occasional revenue & costs
Costs that are incurred unevenly during a FY may be anticipated or deferred if appropriate (for that type of cost)
Entity’s budget may include discretionary costs expected to be incurred at a particular time period or irregularly – BUT entity can only recognise the cost if it is incurred & not otherwise
E.g. ABC makes donations to its favourite charities just before YE
Donations will be recognised in the last interim financial reporting period, i.e. when donations are made

26. IFRIC Interpretation 10, Interim Financial Reporting & Impairment
Addresses the issue of impairment of goodwill & financial instruments classified as available-for-sale or cost
MFRS do not allow reversal of impairment loss of goodwill & FI classified at cost
For AFS equity instruments, reversal cannot be done through the profit or loss.
In the case of interim reporting, an impairment loss may be recognised in an interim period
but would not have been recognised if the impairment assessment had been made at a subsequent reporting date
Consensus:
Cannot reverse an impairment loss recognised in a previous period in respect of goodwill, AFS equity investments & FI carried at cost

27. Class exercise Page 713

28. Class exercise ACE prepares interim half-yearly reports; FYE: 31/12/X6
Discuss how the following items will be treated in the interim reports:
During the first half year, the entity had spent RM2 million on research & development & as at 30/6 the recognition criteria for development expenditure were not met. It was only on 3/7/X6 that the recognition criteria were met. Subsequently, ACE spent RM1.2 million on further development.
ACE depreciates its tangible non-current assets at 10% by applying the straight-line method. The cost of the assets at 30 June was RM25 million. The entity planned to purchase additional non-current assets for RM10 million on 1/4/X6 but it was postponed to 1/7/X6.

29. Class exercise (Contd.)
The cost of its inventories was RM670,000 and the NRV was RM600,000. These inventories had a realisable value of RM1 million on 31/12/X6.
One of ACE’s associates was expected to declare its dividends for FYE 31/12/X5 on 1/3/X6. However, it only declared it on 1/7/X6.
ACE has a practice of making large donations to charities at the end of the year. The amount budgeted for the year X6 was RM2.5 million.
ACE also carries out half-yearly extensive maintenance on its factory plant in Q2 of the year. However, the maintenance work costing RM800,000 was only carried out in July X6.

30. Exercise - Answer 30 June x6 31 December x6
Write off development expenditure
Recognise the RM1.2 million as an asset
b. Depreciation charge based on RM25 million for half the year
Depreciation charge of 10% for half year on RM35 million.
c. Recognise loss of RM70,000
May be able to write back to cost.
d. Do not recognise
Recognise
e. No charge
Charge all
f. No charge