IAS 34 identifies the components that should, as a minimum, be included in interim financial reports: Condensed balance sheet. Condensed statement of comprehensive income, presented as either: a condensed single statement; or separate condensed income statement and condensed statement of comprehensive income. Condensed statement of changes in equity. Condensed cash flow statement. Selected explanatory notes.

An interim financial report should include a condensed statement or condensed statements of profit or loss and other comprehensive income, in the same format as in its annual financial statements – that is, if an entity presents items of profit or loss in a separate statement under IAS 1 (in its annual financial statements), it presents interim condensed information from that statement.

Each of the condensed primary statements should include, at a minimum, each of the headings and sub-totals used in the most recent financial statements.

What guidance is there on what headings and sub-totals should be included in the interims? IAS 1 contains illustrative examples of balance sheets, income statements, statements of comprehensive income and statements of changes in equity prepared in accordance with IFRS that provide guidance, for preparers of financial statements, of the headings and sub-headings that might be appropriate. Similarly, IAS 7 contains illustrative examples of cash flow statements, providing guidance of the headings and sub-totals required. These headings and sub-totals form the framework for the condensed primary statements presented in the interim financial report, and they ensure the comparability of the interim financial reports of different entities.

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How do you determine which line items should be included in the primary statements? Although IAS 34 does not require the presentation, in the condensed primary statements, of all of the line items that are required by IAS 1 to be included in the primary statements contained in the annual financial statements, it is common (and, indeed, it is considered best practice) to include them. Additional line items or notes should be included if their omission would make the condensed interim financial statements misleading. In some territories, the extent to which line items can be aggregated in condensed interim financial statements might also be governed by local regulator or market requirements.

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Should extra line items that are not included in the annual financial statements be included in the interims? IAS 34 requires additional line items or notes to be included if their omission would make the condensed interim financial statements misleading. An entity might incur costs on an annual basis that are not significant enough, in the context of the annual financial statements, to require separate disclosure. However, such costs might be incurred unevenly during the year and require separate presentation on the face of the condensed income statement, thus leading to a difference in presentation between the interim financial report and the annual financial statements.

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Example headings presented in the condensed interim balance sheet An entity’s balance sheet, in its annual financial statements, comprises all of the line items that are required by IAS 1, categorised into the following headings: ·        non-current assets. ·        Current assets. ·        Current liabilities. ·        Non-current liabilities. ·        Equity. The entity’s balance sheet also includes sub-totals for ‘total assets’ and ‘total liabilities and equity’. It appears acceptable for an entity to present just these seven lines in its condensed balance sheet prepared in accordance with IAS 34. However, taking into account an IFRS IC agenda decision in July 2014, such a presentation might not meet the underlying principles of IAS 34 which requires an entity to present condensed financial information that is not misleading. It might be appropriate to present the same line items in an entity’s condensed primary statements as are presented in the full primary statements included in its annual financial statements. Management should use its judgement in determining the level of disaggregation.

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Can the cash flow statement be presented as three lines (that is, operating, investing and financing)? An IFRS IC agenda decision, in July 2014, identified that there were divergent views on how IAS 34 was applied to the presentation of cash flows in interim financial statements. One view was that an entity could present a detailed structure of the condensed cash flow statement, showing cash flows by nature, and a second view was that an entity could show a three-line condensed cash flow statement showing only a total for each of operating, investing and financing cash flow activities. The IFRS IC observed that the underlying principles in IAS 34 require an entity to present condensed financial information that is not misleading. It also does not expect that a three-line presentation alone would meet the requirements in IAS 34. Management should use its judgement in determining the level of disaggregation.

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Associates and joint arrangements IAS 34 is silent on the disclosure of the group’s share of the results of associates and joint arrangements (that is, joint ventures or joint operations) in its interim financial report. However, IAS 34 requires the reporting entity to use the same basis for preparing the interim financial report as that for the most recent annual financial statements, except for accounting policy changes made after the date of the most recent annual financial statements that are to be reflected in the next annual financial statements. Also, as outlined, IAS 34 requires the condensed primary statements to include the main headings and sub-totals as are presented in the most recent annual financial statements. Associates and joint ventures are required, under IAS 28 or IFRS 11, to be equity accounted in the consolidated financial statements. The following disclosures, based on the disclosures that would be given in annual financial statements under IAS 1, could be considered: ·        The group’s interest in associates (and joint ventures) could be disclosed as a separate line item in the condensed balance sheet. ·        The group’s share in the associates’ (and joint ventures’) profits or losses could be disclosed as a separate line item in the condensed income statement. ·        The group’s share of items recognised in other comprehensive income by the associates (and joint ventures) could be separately disclosed in the condensed statement of comprehensive income. IFRS 12 requires disclosures in the annual financial statements for each associate and joint venture that is material to the reporting entity, in addition to other disclosures in aggregate for those that are individually immaterial. The following disclosures for material associates and joint ventures, based on the disclosures that would be given in annual financial statements under IFRS 12, could be considered for the interim financial statements, possibly given in aggregate: ·        Dividends received from the joint venture or associate. ·        Certain summarised financial information for the associate or joint venture. ·        Details of commitments for joint ventures. In addition, IFRS 12 requires disclosure in respect of the nature and extent of an entity’s interests in joint operations (where the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement). Disclosure should be considered in the interim financial statements if there are changes in associates or joint arrangements that are significant to an understanding of the changes in the entity’s financial position and performance since the end of the last annual reporting period.

Contractual or anticipated purchase price changes

Volume rebates or discounts and other contractual changes in the prices of raw materials, labour, or other purchased goods and services are anticipated in interim periods, by both the payer and the recipient, if it is probable that they have been earned or will take effect. Thus, contractual rebates and discounts are anticipated, but discretionary rebates and discounts are not anticipated because the definitions of asset and liability (requiring control over resources to be received, or an obligation to pay out resources) would not be met.

Note that IAS 34 refers to the definitions of asset and liability in the Conceptual Framework. In this instance, the reference is to the Conceptual Framework for Financial Reporting issued in 2010.

Depreciation and amortisation

Depreciation and amortisation charges for an interim period are based only on assets owned during that interim period. They should not take into account asset acquisitions or disposals planned for later in the financial year.

It would not generally be necessary to reassess residual values for items of property, plant and equipment as at the interim date, unless there are indicators that there has been a material change in residual values since the end of the previous reporting period.

Inventories

Measurement of inventories – general

Inventories are measured for interim financial reporting using the same principles as at the financial year end. IAS 2 establishes requirements for recognising and measuring inventories. Inventories pose particular problems at the end of any financial reporting period because of the need to determine inventory quantities, costs and net realisable values. Nonetheless, the same measurement principles are applied for inventories at the end of interim reporting periods. To save cost and time, entities often use estimates to measure inventories at interim dates to a greater extent than at the end of annual reporting periods.

Net realisable value of inventories

The net realisable value of inventories is determined by reference to selling prices and related costs to complete and dispose at interim dates.

Provisions for write-downs to net realisable value should be calculated in the same manner as at the end of the financial year.

An entity will reverse a write-down to net realisable value in a subsequent reporting period only if it would be appropriate to do so at the end of the financial year.

Interim period manufacturing cost variances

Price, efficiency, spending and volume variances of a manufacturing entity are recognised in income at the end of interim reporting periods to the same extent that those variances are recognised in income at the financial year end. Deferral of variances that are expected to be absorbed by the year end is not appropriate because it could result in reporting inventory at the interim date at more or less than its portion of the actual cost of manufacture.

Foreign currency translation gains and losses

Foreign currency translation gains and losses are measured for interim financial reporting using the same principles as at financial year end.

IAS 21 specifies how to translate the financial statements of foreign operations into the presentation currency, including guidelines for using average or closing foreign exchange rates and guidelines for including the resulting adjustments in profit or loss or in other comprehensive income. Consistent with IAS 21, the actual average and closing rates for the interim period are used. Entities do not anticipate changes in foreign exchange rates in the remainder of the current financial year when translating foreign operations at an interim date.

If IAS 21 requires that translation adjustments are recognised as income or as expenses in the period in which they arise, that principle is applied during each interim period. Entities do not defer some foreign currency translation adjustments at an interim date if the adjustment is expected to reverse before the end of the financial year.

Interim financial reporting in hyperinflationary economies

Interim financial reports in hyperinflationary economies are prepared following the same principles as at financial year end. IAS 29 requires that the financial statements of an entity that reports in the currency of a hyperinflationary economy be stated in terms of the measuring unit current at the end of the reporting period, and the gain or loss on the net monetary position is included in net income. Also, comparative financial data reported for prior periods is restated to the current measuring unit.

Entities are required to follow the same principles at interim dates, thereby presenting all interim data in the measuring unit as of the end of the interim period, with the resulting gain or loss on the net monetary position included in the interim period’s net income. Entities should not annualise the recognition of the gain or loss. Nor do they use an estimated annual inflation rate in preparing an interim financial report in a hyperinflationary economy.

Interim financial reporting for a foreign operation with a functional currency of a hyperinflationary economy As discussed, foreign operations with a functional currency of a hyperinflationary economy are, in annual financial statements, translated into a non-hyperinflationary presentation currency by first restating the foreign operation’s financial statements in accordance with IAS 29, and then translating all amounts (assets, liabilities, equity items and income and expenses) into the presentation currency at the closing rate. IAS 34 does not include specific requirements regarding how the results and financial position of a foreign operation with a functional currency of a hyperinflationary economy should be presented in interim consolidated financial statements with a non-hyperinflationary presentation currency. However, applying the general requirement of IAS 34 for measurements to be made on a year-to-date basis, together with the requirements of IAS 34 (on foreign currency translation) and IAS 34 (on hyperinflation) it is clear that, in presenting the statements of financial position and comprehensive income cumulatively for the current financial year-to-date the same approach is applied as for the annual financial statements (i.e. both the general price index and exchange rate applied should be that as at the interim reporting date). If the foreign operation has been hyperinflationary throughout the financial year, the results of the current interim period should be presented as the difference between the cumulative year-to-date results and the previously reported results at any earlier interim reporting date. For example, if the profit of a hyperinflationary subsidiary for the nine months to September 20X1 is calculated, in presentation currency (PC) terms, to be PC200 (using both general price index and exchange rate as at 30 September 20X1) and the previously reported profit for the six months to June 20X1 (calculated using general price index and exchange rate as at 30 June 20X1) was PC125, the profit for the three months to September 20X1 should be reported as PC75 (PC200 − PC125). Changes in price index and exchange rate between 30 June and 30 September should be considered economic events that occurred during the three months to September, not as adjusting events leading to the ‘restatement’ of previously reported interim results. In a financial year in which a foreign operation becomes hyperinflationary, it is also permitted (although not required) to present the ‘catch up’ effects of applying inflation accounting for the first time (i.e. the effect of inflation and retranslation at closing rate on earlier interim periods and the adjustment to other comprehensive income or equity) within the results for the current interim period, rather than only in the cumulative year-to-date figures. In the above example, had the subsidiary previously reported profits for the six months to June 20X1 of PC100 (on a non-hyperinflationary basis), this approach would result in profit for the three months to September of PC100 (PC200 − PC100).

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