What are Interim Financial Statements?
Financial statements that account for a period of less than one year are termed as the interim financial statements. Publicly-held companies must issue these financial statements at quarterly intervals; this concept is most commonly applied to such companies.
- The purpose is to provide other users and investors updated information on the corporation’s operation.
- To get a timelier look into a business’s operations instead of waiting till the end of the accounting period and are not available for long after financial year close.
- While allocating investment capital, investors find the periodic snapshots which eventually lead to a greater liquidity.
Features of Interim Financial Reporting
The concept of this can be applied to any term of periods such as last seven months or five months. As of a specific point in time, since this kind of financial statement only refers to equity, assets, and liabilities, the interim concept does not apply to the balance sheet, rather than over a period of time. As they contain the same documents interim financial statements are similar to annual financial statements. The ones found in annual financial statements will also match the line items appearing in the interim statements.
The primary differences can be found in the areas discussed below:
- Disclosures of few forms are not required in interim financial statements or can be represented in a format which is more summarized.
- Accrual Basis: Accrued expenses can vary within interim reporting periods. For example, an expense’s recognition may be spread across multiple periods or could be recorded entirely within one reporting period.
- Seasonality is what impacts the revenues generated by the business significantly. Interim statements may reveal periods of major losses and profits in such cases which are not evident in the annual financial statements.
Are Interim Financial Statements Audited?
Given the cost and time required for an audit and the requirement of the financial information, mostly it is not audited and is also condensed; only the year-end annual financial statements are audited.
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Its quarterly financial statements are instead reviewed if a company is publicly-held. An outside auditor conducts the review but the activities, are much reduced from those employed in an audit, encompassed by a review. Therefore, it becomes important to read the complete and previously issued annual financial statements and reports.
It is essential that accounting practices in these statements be regular with the accounting practices which will be followed in the annual financial statements, in order for the interim statements amounts to, the add up to the amounts reported in the official income statement for the year.
Importance of Interim Financial Statements
Now we will discuss a few other important contents:
IAS 34 ‘interim financial reporting’ requires that the interim financial statements either condensed or complete shall include:
- As at the end of the current interim period a statement of financial position and as at the end of the immediately preceding financial year a comparative statement of financial position.
- Two separate statements, one being a profit or loss statement and another comprehensive income statement for the current interim period and cumulatively for the current financial year to date with comparatives for the comparable interim periods or a single profit or loss statement and another comprehensive income statement for the current interim period and cumulatively for the year to date current financial year, with comparatives for the comparable interim periods.
- For the current financial year to date a statement of changes in equity showing changes in equity cumulatively, with a comparative statement for the comparable year to date period of the previous immediate financial year and
- For the current financial year to date a statement of cash flows, with a comparative statement for the comparable year to date period of the previous immediate financial year.
In order to report the performance of a financial company, it is applied before the beginning of a fiscal year and at the end of a fiscal year. The series of condensed statements are also included in these statements which are helpful in covering the status of the company and the economic position. The position of a company, financial status, income, mechanism of cash flow and other related changes are many of the attributes included in these.
A public financial report covering a period of less than one year is what financial interim statements are basically. Common examples of Interim statements may be a simple quarterly report or a six-monthly financial report. It does not need to be audited. However, by providing the latest information through this interim financial reporting, the companies are able to timely communicate their financial performance to the investors and financial analysts.
Interim Financial Statements Video
This has been a guide to what are interim financial statements. Here we discuss features of interim financial reporting along with importance and examples. You may learn more about accounting from the following articles –
- Objectives of Financial Statement and Analysis
- Top 10 Limitations of Financial Statement
- Who are the Users of Financial Statements?
- Accrued Expenses on Balance Sheet | Advantages
- Journal Entries for Accrued Expense
- What is Statement of Cash Flow?
- Other Comprehensive Income
- Consolidated Financial Statement
- Financial Reporting
- Financial Accounting Careers
- Financial Analyst Job Description