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DE LA SALLE UNIVERSITY MANILA

RVR COB DEPARTMENT OF ACCOUNTANCY


REVDEVT 1st Term AY 14-15
Theory of Accounts
TOA Lecture 6

Prof. Francis H. Villamin

IAS 34 INTERIM FINANCIAL REPORTING


1. INTRODUCTION
The objective of IAS 34 is to prescribe the minimum content of an interim financial report (i.e. of interim
financial statements) and to prescribe the principles for recognition and measurement in such a report. An
interim financial report is presented for an interim period, i.e. for a financial reporting period that is shorter
than a full financial year (IAS 34.1 and 34.4).
While all entities that apply IFRSs are required to present financial statements at least annually (IAS 1.36).
IAS 34 does not contain a commitment to prepare interim reports. Moreover, IAS 34 does not prescribe the
length of interim periods. These issues are left to be decided by governments, securities regulators, stock
exchanges and accountancy bodies. However, if an entity is required or elects to publish an interim financial
report in accordance with IFRSs, IAS 34 has to be applied (IAS 34.1).
If the entitys most recent annual financial statements were consolidated statements, the entitys interim
financial reports also have to be prepared on a consolidated basis (IAS 34.14).
2. CONTENT OF AN INTERIM FINANCIAL REPORT
2.1 Components
IAS 34 defines the minimum content of an interim report as including condensed financial statements
(condensed interim report). However, an entity may also prepare a complete set of financial statements as
described in IAS 1 (comprehensive interim report) (IAS 34.4 and 34.6).
A condensed interim report consists of the following components (IAS 34.8):
A condensed statement of financial position
Either:
o a condensed single statement of comprehensive income (one statement approach) or
o a condensed separate income statement and a condensed separate statement of comprehensive
income (two statement approach)
A condensed statement of changes in equity
A condensed statement of cash flows
Selected explanatory notes
If the components of profit and loss are presented in a separate income statement as described in IAS 1.10A,
interim condensed information is presented from that separate statement (IAS 34.8A).
A condensed interim report has to include, at a minimum, each of the headings and subtotals that were
included in its most recent annual financial statements as well as the selected explanatory notes as required
by IAS 34. Additional line items or notes have to be included if their omission would make the condensed
interim report misleading (IAS 34.10).
If an entity publishes a complete set of financial statements in its interim report (comprehensive interim
report), the form and content of those statements have to conform to the requirements of IAS 1 for a complete
set of financial statements (IAS 34.4-34.5 and 34.9).
2.2 Periods and dates to be presented in interim reports
The statement of financial position has to be presented as at the end of the current interim period and as at
the end of the immediately preceding financial year (IAS 34.20a). In some cases, it may be necessary to
present a third statement of financial position (IAS 34.5f).

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IAS 34 Interim Financial Reporting

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The single statement of comprehensive income (one statement approach) or the separate income
statement and the separate statement of comprehensive income (two statement approach) have to be
presented for the following periods (IAS 34.20b):
Current interim period
Cumulatively for the current financial year to date
Comparable periods (current and year-to-date) of the immediately preceding financial year
The statement of changes in equity and the statement of cash flows are presented 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 (IAS 34.20c and d).
3. MATERIALITY
In deciding how to recognize, measure, classify or disclose an item for interim financial reporting purposes,
materiality has to be assessed in relation to the interim period financial data. In making assessments of
materiality, it has to be recognized that interim measurements may rely on estimates to a greater extent than
measurements of annual financial data (IAS 34.23).
4. RECOGNITION AND MEASUREMENT
The recognition and measurement guidance of IAS 34 also applies to complete financial statements for an
interim period (i.e. to a comprehensive interim report) (IAS 34.7).
4.1 Discrete approach vs. integral approach
The same accounting policies are applied in an entitys interim financial statements as are applied in its
annual financial statements. Departures from these accounting policies are subject to the general rules of
IFRS (IAS 34.28 34.29). For example, initial application of a new Standard or of an amended version of an
existing Standard may lead to the application of a different measurement method in the entitys first quarterly
financial statements of the year (as at Mar 31, 02) than in its last annual financial statements (as at Dec. 31,
01).
Interim financial reporting according to IAS 34 is primarily based on a discrete view. By contrast, interim
financial reporting according to US GAAP (see among others: APB 28) is more based on an integral view:

Under the discrete approach (IAS 34) interim period profit or loss is measured by viewing each
interim period separately and not by anticipation of the annual financial statements. For assets, the
same tests of future economic benefits apply at interim dates as at the end of the financial year.
Costs that by their nature would not qualify as assets at the financial year-end would not qualify at
interim dates either. Similarly, a liability at the end of an interim period has to represent an existing
obligation at that date, just as it must at the end of an annual reporting period (IAS 34.32).
Under the integral approach, interim period profit or loss is measured by viewing each interim period
as an integral part of the corresponding annual period. The interim report is intended to enable
forecasts of the annual financial statements. For example, it may be the case that an entity performs
the day-to-day servicing for its machines during its off-season, which is the first quarter of the year.
The expenditures for this work do not qualify for capitalization in the entitys annual financial
statements as at Dec. 31. Under the discreet approach, the total of these expenditures would be
recognized in profit or loss in the entitys first quarterly financial statements as at Mar 31 (IAS 34.B2).
However, under the integral approach, an appropriate portion of these expenditures is allocated to
each interim period of the year.

4.2 Independence of the annual result from the frequency of reporting


The frequency of an entitys reporting (annual, half-yearly or quarterly) must not affect its annual results (IAS
34.28):
This principle is breached in the case of reversals of impairment losses relating to goodwill. Reversing
goodwill impairment losses is prohibited in the annual financial statements (IAS 36.124 36.125). IFRIC 10
extends the scope of that prohibition. It also prohibits, for example, reversing an impairment loss relating to
goodwill recognized in the first quarterly financial statements of the year in the annual financial statements.

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4.3 Quantity component and price component


Revenues and expenses regularly have a quantity component as well as a price component:
Quantity component: Under the discrete approach, the actual quantity structure of the quarter is
relevant. This means that it is prohibited to recognize an appropriate portion of revenues and
expenses that arise in subsequent quarters according to IFRSs in the current quarterly financial
statements. Vice versa, it is prohibited to recognize an appropriate portion of revenues and expenses
that arise in the current quarter according to IFRSs in the interim reports of the next quarters.

With regard to the price component, the IAS 34 is rather based on an integral view than on a
discrete view. If the price component depends on whether certain limits will be exceeded for the
whole year, the price that is recognized in the first quarters depends on an estimate of whether those
limits will be exceeded by the end of the year. An example is a contractually agreed volume rebate,
the percentage of which depends on the quantity purchased during the year (IAS 34.B23).

These considerations also apply when measuring interim income tax expense (IAS 34.30c and 34.B12
34.B16):
The tax base is the taxable profit for the interim period (quantity component in a broader sense).
In the case of a progressive tax system, the tax rate (price component) is determined on the basis of
the estimated amount of taxable profit for the year (estimated weighted average tax rate for the year).
Finally, the tax rate is multiplied with taxable profit for the interim period.
The estimate of the tax rate for the year may have to be adjusted as a result of the taxable profit for the
following interim period (IAS 34.B13).

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