PAS 34 Interim Financial Reporting: Learning Objectives

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PAS 34 Interim Financial Reporting

Learning Objectives
1. Define an interim financial report.
2. State the scope and applicability of PAS 34.
3. Briefly describe the recognition and measurement principles applied in interim financial reporting.

Introduction
PAS 34 prescribe the minimum content of an interim financial report and the recognition and measurement principle in
complete or condensed financial statements for an interim period.
PAS 34 does not mandate which entities should produce interim financial reports. PAS 34 is applied when an entity
chooses, or is required by the government or other institution, to publish interim financial report that complies with PFRSs.
PAS 34, however, encourage publicly listed entities to provide at least a semi-annual financial report for the first half
of the year to be issued no later than 60 days after the end of the interim period.

 Under the reportorial requirements of the Revised Securities Act in the Philippines, the Securities and
Exchange Commission (SEC) and the Philippine Stock Exchange (PSE) require certain entities to provide
quarterly financial reports within 45days after the end of each of other first three quarters. Similarly, the SEC
requires entities covered under Rules of Commercial Papers and Financing Act to file quarterly financial
reports within 45days after each quarter-end.

Financial reports, whether annual or interim, are evaluated for conformity to the PFRSs on their own. Non-
preparation of interim reports or non-compliance with PAS 34 does not necessarily prevent the entity’s annual financial
statements from conforming to the PFRSs.

Interim Financial Report


An interim financial report is a financial report prepared for an interim period and contains either:
a. A complete set of financial statements as described in PAS 1; or
b. A set of condensed financial statement as described in PAS 34.

 Interim period is a “financial reporting period shorter the full financial year” (PAS 34.4)

An entity presenting an interim financial report has the option of applying either PAS 1 or PAS 34.
 The entity applies PAS 1 if it opts to provide a complete set of financial statements in its interim
financial report.
 The entity applies PAS 34 if it opts to provide a condensed set of financial statements in its interim
financial report.

PAS 1 Complete set of FS PAS 34 Condensed set of FS


1. Statement of financial position 1. Condensed statement of financial position
2. Statement of profit or loss and other 2. Condensed statement of profit or loss and other
comprehensive income comprehensive income
3. Statements of changes in equity 3. Condensed statement of changes in equity
4. Statement of cash flows 4. Condensed statement of cash flows
5. Notes (5.a) Comparative information 5. Selected explanatory notes
6. Additional statement of financial position
(required only when certain instances occur)

An entity is not prohibited or discouraged from preparing a complete set of financial statements (in accordance with PAS
1) for its interim financial reporting.
However, in view of timeliness and cost considerations and to avoid repetition of information previously reported,
an entity may be required or elect to provide less information at interim dates as compared with its annual financial statements.
In such case, the entity applies PAS 34 to provide a set of condensed financial statements. “Condensed” means the entity need
only provide the minimum information required under PAS 34.
At a minimum, condensed interim financial statements include each of the headings and subtotal that were included
in the entity’s most recent annual financial statements and the selected explanatory notes required by PAS 34. Additional line
items or notes are provided if their omission makes the condensed financial statements misleading.

Significant events and transactions


Interim reports are intended to provide an update the latest complete set of annual financial statements. Hence, they focus on
providing information on significant events and transactions that have occurred since the latest annual period, rather than
duplicating previously reported information or providing relatively significant updates on them.
Consequently, users of interim financial report and assumed to also have access to the entity’s latest annual
financial report.
Examples of events and transaction for which disclosures should be required if they are significant:
a. Write-down of inventories and reversal thereof
b. Impairment losses and reversal thereof
c. Reversal of provision for restructuring costs
d. Acquisitions and disposals of PPE, including purchase commitments
e. Litigation settlements
f. Corrections of prior period errors
g. Business or economic circumstances affecting the fair value of financial assets and financial liabilities
h. Unremedied loan default or breach of loan agreement related party transactions.
i. Transfer between levels of the fair value hierarchy used in measuring the fair value of financial instruments
j. Changes in the classification of financial assets
k. Changes in contingent liabilities or contingent assets (PAS 34.15B)

Other Disclosure
In addition to significant events and transactions, the following are also disclosed in the interim financial report:
a. A statement that the same accounting politics were used in the interim financial statements as those used in the latest
annual financial statements. If there have been changes, if there have been changes, those changes are disclosed.
b. Explanation of seasonality or cyclicality of interim operations
c. Unusual items affecting the financial statements elements
d. Changes in accounting estimate
e. Issuances and settlement of debt and equity securities
f. Dividends paid
g. Segment information (if the entity is covered by PFRS 8)
h. Events after the reporting period
i. Changes in the composition of the entity e.,g., business combinations, obtaining or losing control of subsidiaries,
restructurings, and discontinued operations
j. Disclosures on the fair value of financial instruments
k. Disclosures requires by PFRS 12 when the entity becomes or cease to be an investments entity.
l. Disaggregation of revenue from contracts with customers as required by PFRS 15

 The entity presents basic and diluted earnings per share if the entity is within the scope of PAS 33.
 The entity discloses its compliance with PFRSs if it has complied with PAS 34 and all the requirements of other
PFRSs.

Period for which interim financial statements are presented


The following illustrates the periods covered by interim financial statements, including comparative information:

 Semi-annual interim financial reporting


For an entity that uses the calendar year as its accounting period, the following interim financial statements will appear
in its semi-annual interim financial report on June 30, 20x1.
Current Comparative
Statement of financial position
As of June 30, 20x1 December 31, 20x0

Statement of profit or loss and other comprehensive income


For the 6 months ending June 30,20x1 June 30, 20x0

Statement of changes in equity


For the 6 months ending June 30, 20x1 June 30, 20x0

Statement of cash of flows


For the 6 months ending June 30, 20x1 June 30, 20x0

 Quarterly interim financial ending


For an entity that uses the calendar year, the following statements will appear in its third quarter interim financial report on
September 30, 20x1.

Current Comparative

Statement of financial position


As of September 30, 20x1 December 31, 20x0

Statement of profit or loss and other comprehensive income


For the 9 months ending September 30, 20x1 September 30, 20x0
For the 6 months ending September 30, 20x1 September 30, 20x0

Statement in changes in equity


For the 9, months ending September 30, 20x1 September 30, 20x0

Statement of cash of flows


For the 9 months ending September 30, 20x1 September 30, 20x0

Notes:
 The comparative statement of financial position is the most recent annual financial statement.
 For the other financial statements, the comparatives are presented on a comparable year-to-date period.
 The interim financial statement are presented on a cumulative basis (year-to-date). However, an additional statement
of profit or loss and other comprehensive income is presented that covers the current quarter only.

If an entity’s business is highly seasonal, PAS 34 encourage disclosure of financial information for the latest 12 months
and comparative information for the prior 12-months period in addition to the interim period financial statement above.
If an entity changes in accounting estimate in the final interim period (e.g., 4rth quarter) but interim financial statement is
not prepared for that period, the change in accounting estimate is disclosed in the annual financial statements.

Materiality
Materiality judgments on recognition, classification and disclosure of items in the interim financial report are assessed in the
relation to the interim period financial date, and not forecasted annual date PAS 34 recognizes that interim measurements may
rely on estimates to a greater extent than measurements of annual financial data.
Recognition and measurement

Same accounting policies as annual


The same accounting policies are used in interim reports as those used in annual reports, except for accounting policy changes
made after the date of the most recent annual financial statement date are no reflected in the next annual financial statements
.
Two vies on interim reporting
1. Integral view – the interim period is considered as an integral part of the annual accounting period. Thus, annual
operating expenses are estimated and then allocated to the benefitted interim periods based on forecast annual activity
levels. Subsequent interim period financial statements are adjusted to reflect of changes in estimates in earlier interim
periods of the same financial year.

2. Discrete view – the interim period is considered as a discrete (‘stand-alone’) accounting period. The same expense
recognition principles applied in annual reporting are used in the interim period. No special interim accruals or
deferrals are made. Annual operating expense are recognized in the interim period in which they are incurred
regardless of whether subsequently interim periods are benefitted.

Proponents of the integral view argue that the estimation and allocation procedures for interim expense are necessary to
avoid fluctuations in period-to-period results that might be misleading to financial statement users. The use of integral view
arguably increases the predictive value of interim reports by showing interim performance that is indicative of what the annual
performance would be.
Proponents of the discrete view argue that smoothing interim results for purposes of forecasting annual performance
may have undesirable effects. A significant change in performance trend could be obscured if smoothing techniques implied
by the integral view approach were to be employed.
PAS 34 adopts a combination of the two views. PAS 34.29 recognizes that while the requirement that same
accounting policies shall be used in the interim period is a stand-alone period (discrete view), PAS 34.28 states that the
frequency of the reporting (annual half-yearly, or quarterly) shall not affect the measurement of the annual results, which is on
a year-to-date basis; and therefore the interim period is part of a larger financial year (integral view).

PAS 34 provides the following accounting principles:


a. Losses form inventory write-downs, restructurings, or impairments in an interim period are accounted for in the same
way as in annual financial statements (i.e., losses are recognized immediately in the interim period in which they
arise).
If there are subsequent changes in estimates, the original estimate is adjusted by accruing an additional loss or by
reversing a previously recognized loss. Financial statements in previous interim periods are not restated.

b. A cost that does not qualify as an asset in an interim period is not deferred either to wait if it qualities in the next
period or to smooth earnings over the interim periods within a financial year.
Likewise, a liability at the end of an interim period must meet all the recognition criteria at that date, just as it must at
the end of an annual reporting period.

c. Income tax expenses in interim periods are based on the best estimate of the weighted average annual income tax
expected for the full financial year.

Items (a) and (b) above favor the discrete view while item (c) favors the integral view.
The recognition principles of assets, liabilities, income and expenses under the Conceptual Framework are applied in the
interim period in the same way as in annual period. Thus, items that do not qualify as such in the interim period.

Measurement
Measurement in the interim period are made in a year-to-date basis, so that frequency of reporting (annual, semi-annual, or
quarterly) does not affect the measurement of annual results.
Revenues received seasonally, cyclically, or occasionally
Revenues that are received seasonally, cyclically, or occasionally are not anticipated or deferred in the interim period if
anticipation or deferral is also not appropriate at eh end of the annual period.
Examples include: dividend revenue, royalties, and government grants. Such revenues are recognized when they
occur.

Cost incurred unevenly during the financial year


Cost that are incurred unevenly during a financial year are anticipated or deferred in the interim period only if it is also
appropriate to anticipate or defer them at the end of the financial year.

SELF-CHECK PROBLEMS

PROBLEM 1
1. Entity A wants to publish quarterly interim financial reports. Which of the following standards may Entity A apply in
preparing and presenting its interim financial reports?
a. PAS 1 c. PFRS 1
b. PAS 34 d. a or b

2. If an entity does not prepare interim financial reports,


a. Its annual financial statements would not conform to the PFRSs
b. Its annual financial statements should not be described to have been prepared in accordance with PFRSs.
c. The conformance of its annual financial statements with the PFRSs is not affected.
d. A and b

PROBLEM 2
1. Which of the following is correct regarding the provisions of PAS 34?
a. All entities should publish quarterly interim reports
b. All publicly-listed entities should publish semi-annual interim reports.
c. All publicly-listed entities should publish semi-annual interim reports.
d. PAS 34 does not require any entity to publish interim reports. And how often.

2. Interim financial reports prepared in accordance with PAS 34 shall, at a minimum, include
a. Semi-annual interim financial statements
b. Complete set of financial statements
c. Condensed set of financial position and an income statement
d. A statement of financial position and an income statement

3. Entity A publishes quarterly interim financial reports, Entity A’s annual depreciation for items of PPE is 120,000. At
the end of the first quarter, Entity A’s inventories have a cost of 600,000 and a net realizable value of 510,000. Entity
A expects that the total employee bonuses (13 th month pay) that will be paid at year-end will amount to 60,000. How
much is the total amount of expense to be recognized from the items described above in Entity A’s first quarter
statement of profit or loss?
a. 120,000 c. 30,000
b. 135,000 d. 270,000

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