Interim Reporting

Interim Report Meaning

An Interim Report are financial statements reported by a firm for a period less than one year (semiannually, quarterly or even monthly basis) and normally reviewed by a company’s internal auditorsInternal AuditorsInternal audit refers to the inspection conducted to assess and enhance the company's risk management efficacy, evaluate the different internal controls, and ensure that the company adheres to all the regulations. It helps the management and board of directors to identify and rectify the loopholes before the external audit.read more rather than going for a complete statutory auditStatutory AuditOne of the most common types of audits is the statutory or financial audit. Its main purpose is to gather all relevant information so that the auditor may provide an accurate and unbiased assessment of the company's financial position.read more which would be impractical and time-consuming considering the frequency with which these reports are published.

Although regulators prescribe an annual reporting of data, it helps in establishing better and transparent communication with the investors by providing updated information between annual reporting periods.

As per ICAI – “Timely and reliable interim financial reporting improves the ability of investors, creditors and others to understand an enterprise’s capacity, to generate earnings and cash flows, its financial condition and liquidity.”

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Source: Interim Reporting (wallstreetmojo.com)

Interim Reporting Example

Interim financial reports are declared at various periods providing evidence about the firm’s performance at different intervals during the accounting period.

  • Public listed companies come up with quarterly financial numbers,
  • Real estate firms come up with their numbers on a Project basis as and when these projects are completed.

They implicitly provide essential analytical information.

Consider the following financials of a Major IT company.

Financial PerformanceFiscal Year 2018Fiscal Year 2017GrowthQuarter ending Dec 31 2018Quarter ending Dec 31 2017Growth
Revenues70522684843.0%17794172733.0%
Gross Profit25392252311.0%63446433-1.4%
Operating Profit171481435319%43194334-0.3%
Profit after Tax160291435312%528151542.5%

Even though the operating profit has risen on a year on year basis, there is a drop in quarterly numbers. It suggests that Q4 was not good for the firm, even though there was a good 12% increase in the profit on an annual basis.

The information implicitly signifies the seasonality of the IT business in the Oct-Dec quarter. This info should guide the management in planning for their long-term strategic initiatives.

Objectives of Interim Reporting

The investment decisions are taken around the year. Investors don’t wait for the annual reports that are declared at the end of the fiscal year. With companies relying not only on organic but also on inorganic growth, annual data is insufficient in evaluating developments and earnings projection of the industry and the firm. In such a dynamic business environment, interim reports offer a better periodic snapshot to the shareholdersThe ShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company's total shares.read more. Providing current information will always keep a firm in the good books of the investors, making the allocation of capital investmentCapital InvestmentCapital Investment refers to any investments made into the business with the objective of enhancing the operations. It could be long term acquisition by the business such as real estates, machinery, industries, etc.read more easy leading to better market liquidity, which is the primary goal of capital markets.

Following are the major objectives :

Advantages

  1. It helps in establishing a better connection with the investors.
  2. It is beneficial for big conglomeratesBig ConglomeratesA conglomerate is a company or corporation made up of different businesses that operate in various industries or sectors, often unrelated. It holds a stake in multiple smaller companies that choose to manage their business separately to avoid the risk of being in a single market, thus, taking advantage of diversification.read more that are running multiple lines of business, helping them in tracking if their short-term initiatives are in line with the long-term strategy.
  3. Material misstatement (Error and frauds) in a financial statement can be detected and prevented at an early stage compared to an annual reportAnnual ReportAn annual report is a document that a corporation publishes for its internal and external stakeholders to describe the company's performance, financial information, and disclosures related to its operations. Over time, these reports have become legal and regulatory requirements.read more.
  4. It helps in the implementation of a comprehensive internal control procedure, which further makes accounting policiesAccounting PoliciesAccounting policies refer to the framework or procedure followed by the management for bookkeeping and preparation of the financial statements. It involves accounting methods and practices determined at the corporate level.read more robust.
  5. Declaration of interim dividend is possible when financial statements are reported for small periods incentivizing the shareholders to hold on to their investments.

Challenges/Limitations

Guidelines

To avoid redundancy and reduce complexity considering the nature of interim reports, a firm may report limited information. However, it should contain at least the following components:

There are also some guidelines for explanatory notes. It should include:

Conclusion

Interim reporting is not much different from Annual reporting in terms of content but only differs in the timing of the publication. It is a subset of annual reporting that provides all significant financial data like RevenuesRevenuesRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions.read more, Income, expenditure, losses, etc. for a particular period. A firm doesn’t need to publish it, but doing so can be very beneficial for the firm, investors, and stakeholders, leading to a better and mature economic ecosystem.

Interim Report Video

 

This article has been a guide to Interim Report. Here we discuss this topic in detail, including its meaning, example of interim financial reporting, objectives, advantages, challenges, and limitations. You can also take a look at some of the useful articles:-

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  1. MELESE SOMENO says

    It’s great to hear from you!!

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