INTERIM FINANCIAL REPORTING

An interim financial report is a complete or condensed set of financial statements for a period
shorter than a financial year. IAS 34 does not specify which entities must publish an interim financial report.
That is generally a matter for laws and government regulations. IAS 34 applies if an entity using
International Financial Reporting Standards (IFRSs) in its annual financial statements publishes an interim
financial report that asserts compliance with IFRSs.
IAS 34 prescribes the minimum content of such an interim financial report. It also specifies the accounting
recognition and measurement principles applicable to an interim financial report.
The minimum content is a set of condensed financial statements for the current period and comparative
prior period information, i.e., statement of financial position, statement of comprehensive income,
statement of cash flows, statement of changes in equity, and selected explanatory notes. In some cases, a
statement of financial position at the beginning of the prior period is also required. Generally, information
available in the entity’s most recent annual report is not repeated or updated in the interim report. The
interim report deals with changes since the end of the last annual reporting period.
The same accounting policies are applied in the interim report as in the most recent annual report,
or special disclosures are required if an accounting policy is changed. Assets and liabilities are recognized
and measured for interim reporting based on information available on a year-to-date basis. While
measurements in both annual financial statements and interim financial reports are often based on
reasonable estimates, the preparation of interim financial reports will generally require a greater use of
estimation methods than annual financial statements.

OBJECTIVE OF IAS 34

The objective of this Standard is to prescribe the:

 minimum content of an interim financial report
 recognition and measurement in complete or condensed financial statements in an interim
period.

Timely and reliable interim financial reporting improves the ability of stakeholders (investors,
creditors, and others) to understand an entity’s capacity to generate earnings and cash flows and its financial
condition and liquidity.

SCOPE OF IAS 34

This Standard does not mandate which entities should produce interim financial reports, how
frequently, or how soon after the end of an interim period. IAS 34 is applied when an entity chooses, or is
required by the government or other institution, to publish interim financial report that complies with IFRSs.
This Standard applies if an entity is required or elects to publish an interim financial report in
accordance with IFRSs.
IAS 34, however, encourages publicly listed entities to provide at least a semi-annual financial
report for the first half the year to be issued not later than 60 days after the end of the interim period.
Financial reports, whether annual or interim, are evaluated for conformity to the IFRSs on their
own. Non-preparation of interim reports or non-compliance with IAS 34 does not necessarily prevent the
entity’s annual financial statements from conforming to the IFRS. If an entity’s interim financial reporting
is described as conforming with IFRSs, it must comply with all the requirements of this Standard.

DEFINITIONS

 Interim period is a financial reporting period shorter than a full financial year.
 Interim financial report means a financial report containing either a complete set of financial
statements (IAS 1) or a set of condensed financial statements (IAS 34) for an interim period.

CONTENT OF AN INTERIM FINANCIAL REPORT

 In the interest of timeliness and cost considerations and to avoid repetition of information
previously reported, an entity may be required to or may elect to provide less information at interim dates
as compared with its annual financial statements. This Standard defines the minimum content of an interim
financial report as including condensed financial statements and selected explanatory notes. The interim
financial report is intended to provide an update on the latest complete set of annual financial statements.
Accordingly, it focuses on new activities, events, and circumstances and does not duplicate information
previously reported.
An entity is not prohibited or discouraged from preparing a complete set of financial statements (in
accordance with IAS 1) for its interim financial reporting.

Minimum components of an interim financial report

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

IAS 1 – Complete set of FS IAS 34 – Condensed set of FS

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

Form and content of interim financial statements

At a minimum, condensed interim financial statements include each of the headings and subtotals
that were included in the entity’s most recent annual financial statements and the selected explanatory notes
required by IAS 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 on 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 insignificant updates on them. Consequently, users of interim financial report are assumed to also
have access to the entity’s latest annual financial report. Examples of events and transactions for which
disclosures would be required if they are significant:
a. write-down of inventories to net realizable value 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
i. related party transactions
j. transfers between levels of the fair value hierarchy used in measuring the fair value of financial
instruments
k. changes in the classification of financial assets
l. changes in contingent liabilities
 When an event or transaction is significant to an understanding of the changes in an entity’s financial
position or performance since the last annual reporting period, its interim financial report should provide
an explanation of and an update to the relevant information included in the financial statements of the last
annual reporting period.

Other disclosures

The following disclosures shall be given either in the interim financial statements or incorporated
by cross-reference form the interim financial statements to some other statement that is available to users
of the financial statements on the same terms as the interim financial statements and at the same time. If
users of the financial statements do not have access to the information incorporated by cross-reference on
the same terms and at the same time, the interim financial report is incomplete.
In addition to significant events and transactions, the following are also disclosed in the interim
financial report:
a. a statement that the same accounting policies were used in the interim financial statements as
those used in the latest annual financial statements. If there have been changes, those changes
are disclosed.
b. explanation of seasonality or cyclicality of interim operations
c. unusual items affecting the financial statement elements
d. changes in accounting estimates
e. issuances and settlements of debt and equity securities
f. dividends paid
g. segment information (if the entity is covered by IFRS 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 required by IFRS 12 when the entity becomes or ceases to be an investment
property
l. disaggregation of revenue from contracts with customers as required by IFRS 15
m. The entity presents basic and diluted earnings per share if the entity is within the scope of IAS
33.

The entity discloses its compliances with IFRSs if it has complied with IAS 34 and all the
requirements of other IFRSs.

Disclosures of compliance with IFRSs

If an entity’s interim financial report is in compliance with this Standard, that fact shall be
disclosed. An interim financial report shall not be described as complying with IFRSs unless it complies
with all the requirements of IFRSs.

Periods for which interim financial statements are required to be presented

Interim reports shall include interim financial statements (condensed or complete) as follows:
a. statement of financial position as of the end of the current interim period and a comparative
statement of financial position as of the end of the immediately preceding financial year.
b. statement of profit or loss and other comprehensive income for the current interim period and
cumulatively for the current financial year to date, with comparative statements of profit or
loss and other comprehensive income for the comparable interim periods (current and year-to-
date) of the immediately preceding financial year. As permitted by IAS 1, an interim report
may present each period a statement or statements of profit or loss and other comprehensive
income.
c. statement of changes in equity cumulatively for the current financial year-to-date, with a
comparative statement for the comparable year-to-date period of the immediately preceding
financial year.
d. statement of cash flows cumulatively for the current financial year-to-date, with a comparative
statement for the comparable year-to-date period of the immediately preceding financial year.
Illustration of periods required to be presented

 Entity publishes interim financial reports half-yearly/semi-annually. The entity’s financial year ends 31
December (calendar year). The entity will present the following financial statements (condensed or
complete) in its half-yearly interim financial report as of 30 June 20X1:

 Entity publishes interim financial reports quarterly

The entity’s financial year ends 31 December (calendar year). The entity will present the following
financial statements (condensed or complete) in its quarterly interim financial report as of 30 June
20X1:

If an entity’s business is highly seasonal, financial information for the twelve months up to the end
of the interim period and comparative information for the prior twelve-month period may be useful.

Materiality

Materiality shall be assessed in relation to the interim period financial data. In making assessments
of materiality, it shall be recognized that the interim measurements may rely on estimates to a greater extent
than measurements of annual financial data.
The overriding goal is to ensure that an interim financial report includes all information that is
relevant to understanding an entity’s financial position and performance during the interim period.

DISCLOSURE IN ANNUAL FINANCIAL STATEMENTS

If an estimate of an amount reported in an interim period is changed significantly during the final
interim final period of the financial year but a separate financial report is not published for that final interim
period, the nature and amount of that change in estimate shall be disclosed in a note to the annual financial
statements for that financial year.
RECOGNITION AND MEASUREMENT

Same accounting policies as usual

An entity shall apply the same accounting policies in its interim financial statements as are applied
in its annual financial statements, except for accounting policy changes after the date of the most recent
annual financial statements that are to be reflected in the next annual financial statements. However, the
frequency of an entity’s reporting (annual, semi-annual, or quarterly) shall not affect the measurement of
its annual results. Measurements for interim reporting purposes shall be made on a year-to-date basis. Two
point-of-views in interim reporting:
1. Discrete view – According to paragraph 29 of this Standard, “requiring that an entity apply the
same accounting policies in its interim financial statements as in its annual statements may seem to
suggest that interim period measurements are made as if each interim period stands alone as an
independent reporting period”.
2. Integral view – According to paragraph 29 of this Standard, “providing that the frequency of an
entity’s reporting shall not affect the measurement of its annual results, paragraph 28 acknowledges
that an interim period is a part of a larger financial year.

Year-to-date measurements may involve changes in estimates of amounts reported in prior interim
periods of the current financial year. But the principles for recognizing assets, liabilities, income, and
expenses for interim periods are the same as in annual financial statements. IAS 34 provides the following
accounting principles:
a. Losses from 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).The original estimate is adjusted by accruing
an additional loss or by reversing a previously recognized loss, if there are subsequent changes in
estimates. 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 qualifies
in the next period or to smooth earnings over the interim periods within a financial year.
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 rate expected for the full financial year.

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 the annual period. Thus, items that do
not qualify as assets, liabilities, income or expenses in the annual period do not also qualify as such in the
interim period.

Revenues received seasonally, cyclically, or occasionally

Revenues that are received seasonally, cyclically, or occasionally (e.g., dividends revenue,
royalties, government grants, or season revenues of retailers) within a financial year shall not be anticipated
or deferred as of an interim date if anticipation or deferral would not be appropriate at the end of the entity’s
financial year.

Costs incurred unevenly during the financial year

Costs that are incurred unevenly during an entity’s financial year shall be anticipated or deferred
for interim reporting purposes if, and on if, it is also appropriate to anticipate or defer that type of cost at
the end of the financial year.

Use of estimates

While measurements in both annual and interim financial reports are based on reasonable estimates,
the preparation of interim financial reports generally will require greater use of estimation methods than
annual financial reports.
Restatement of previously reported interim periods

A change in accounting policy, other than one for which the transition is specified by a new IFRS,
shall be reflected by:
a. Retrospectively – restating the financial statements of prior interim periods of the current
financial year and the comparable interim periods of any prior financial years that will be
restated in accordance with IAS 8; or
b. Prospectively – when it is impracticable to determine the cumulative effect at the beginning of
the financial year of applying a new accounting policy to all prior periods, adjusting the
financial statements of prior interim periods of the current financial year, and comparable
interim periods of prior financial years to apply the new accounting policy prospectively from
the earlies date practicable.

ASSESSMENT ACTIVITY

1. Conceptually, interim financial statements can be described as emphasizing

A. timeliness over reliability
B. timeliness over relevance
C. relevance over comparability
D. comparability over verifiability

2. Interim period is a financial reporting period for

A. a period any length of time.
B. a period shorter than one year.
C. a period longer than one year.
D. six months.

3. Which of the following statements are true?

I. Non-compliance with IAS 34 indicated that the entity does not comply with the requirements of IAS 1.
II. IAS 34 requires entities whose equity or debt securities are traded in a public capital market to publish
interim reports at least as of the end of the first half of the financial year.
A. I only B. II only C. Both I and II D. Neither I nor II

4. Rental costs may be accrued or deferred to provide an appropriate expense for each period for

Interim Financial Reporting Year-end Financial Reporting

A. Yes No
B. Yes Yes
C. No No
D. No Yes

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

Interim Financial Reporting Year-end Financial Reporting

A. Yes Yes
B. Yes No
C. No Yes
D. No No
6. Tiger Inc. adopts the calendar year as its reporting period and publish interim financial report for the
quarter ended September 2020. Which of the following financial reports does not bear a correct data/period?
A. Statement of Financial Position as of September 30, 2020 and as of December 31, 2019.
B. Statement of Financial Position as of September 30, 2020 and as of September 30, 2019.
C. Statement of Comprehensive Income for the quarter ended September 30, 2020 and for the
quarter ended September 30, 2019.
D. Statement of Comprehensive Income for the nine months ended September 30, 2020 and for the
nine months ended September 30, 2019.

7. Interim financial reports should include at a minimum

A. a complete set of financial statements complying with IAS 1.
B. a condensed set of financial statements and selected notes.
C. a statement of financial position and a statement of comprehensive income only.
D. a statement of financial position, a statement of comprehensive income and a statement of cash
flows.

8. Revenues received seasonally, cyclically, or occasionally within a financial year

A. shall be anticipated as of an interim date and the revenue should be recognized equally over the
interim periods.
B. shall be deferred and recognized as revenue during the final interim period of the financial year.
C. shall be disclosed, but revenue shall be recognized when earned applying the accounting policies
as in annual.
D. shall not be disclosed, and revenue shall be recognized when earned applying the accounting
policies as in annual.

9. IAS 34 presumes that anyone reading interim financial reports will

A. understand all the Philippine Financial Reporting Standards.
B. have access to the records of the entity.
C. have access to the most recent annual financial statements.
D. not make decisions based on the report.

10. For interim financial reporting, loss from flash flood occurring in the third quarter should be
A. recognized in the third quarter.
B. disclosed by a note only in the third quarter.
C. recognized equally during the third and fourth quarters.
D. deferred and recognized during the last quarter of the year.

11. Jaguar Corp. changed its inventory costing from FIFO to weighted average during the second quarter
of the year. For interim reporting purposes, this change shall be reflected
A. at the beginning of the second quarter of the current financial year.
B. at the beginning of the third quarter of the current financial year.
C. at the beginning of the first quarter of the current financial year.
D. at the beginning of the first quarter in the earliest comparative prior period presented by restating
the financial statements of prior interim periods and the prior interim periods of the current financial
year.

12. An entity opted not to prepare interim financial reports. This means that
A. the year-end financial statements will not be acceptable.
B. the year-end financial statements are deemed not to comply with PFRS.
C. the compliance of the year-end financial statements with the PFRS is not affected.
D. the year-end financial statements should include interim financial reports.
13. On March 31, 2020, the end of the first quarter, Jungle Inc. estimated that its year-end bonus to
executives would be estimated for 300,000. The actual obligation paid for the year-end bonus for 2019 was
P250,000. The estimate for 2020 is subject to year-end adjustment.

What amount of expense, if any, should be reflected in Jungle’s quarterly statement of comprehensive
income for the three months ended March 31, 2020?

14. In January 2020, Sugar Company paid property taxes on its factory building for the calendar year 2020
in the amount of P270,000. In the first week of April 2020, Sugar made an advertising campaign and paid
P600,000. These advertisements are expected to benefit operations for the remainder of the calendar year.

How much of these expenses be reflected in the 1st, 2nd, 3rd and 4th quarterly interim reports?

15. In 2020, RM Co. started operations with an inventory costing P200,000. For the 1st quarter of 2020, the
purchase and sales were as follows:

January February March Total

Purchases P50,000 P380,000 P704,00 P1,134,000
Sales 240,000 510,000 755,000 1,505,000

The goods are sold at a gross profit of 20% of sales.

For interim statement purposes, the inventory at the end of January, February and March, respectively
are

16. Jimin Company has calculated that total depreciation expense for the year ending December 31, 2020,
will amount to P600,000, and that 2020 year-end bonuses to employees total P1,500,000.

In Jimin’s interim statement of comprehensive income for the six months ended June 30, 2020, what is
the total amount of expense relating to these two items should be reported?

17. During the second quarter of 2020, J-Hope Company sold a piece of equipment at a loss of P60,000.

What portion of the loss should J-Hope report on its statement of comprehensive income for the third
quarter of 2020?

18. Magic Shop Corporation incurs costs unevenly throughout the financial year. Advertising costs of
P2,000,000 were incurred on February 29, 2020 and staff bonuses are paid at the year-end based on sales.
Staff bonuses are expected to be around P30,000,000 for the year, based on sales of P300,000,000. Total
sales for the quarter ending March 31, 2020 were P70,000,000.

How much advertising costs and staff bonuses should be included for the quarter ended March 31, 2020?

19. Euphoria Inc. reporting year ends on December 31, and it is currently preparing interim financial
statements for the six months ending June 30, 2020. The price of its product tens to vary. At June 30, 2020,
it has inventories of 100,000 units, at a cost per unit of P14. The net realizable at June 30, 2020 is P12 per
unit. Then expected net realizable value of these inventories at December 31, 2020 is P15.50.

At what amount should these inventories be presented in the interim statement of financial position at
June 30, 2020?
20. Dynamite Company prepared the following income statement for the year ended December 31, 2020:

Sales P 6,000,000
Cost of Good Sold (2,800,000)
Gross profit P 3,200,000
Gain on sale of equipment 100,000
Total Income P 3,300,000
Operating expenses ( 500,000)
Casualty loss ( 300,000)
Income before tax P 2,500,000
Income tax ( 875,000)
Net income P 1,625,000

 Income tax rate is 30%.

 Third quarter sales were 30% of total sales.
 For interim reporting purposes, a gross profit rate of 40% can be justified.
 Variable operating expenses are allocated in the same proportion as sales. Fixed operating expenses
are allocated based on expiration of time. Of the total operating expenses, P400,000 relate to
variable expenses.
 The equipment is sold on June 1, 2020.
 The casualty loss occurred on September 5, 2020.

What is the income before tax for the third quarter ended September 30, 2020?