Interim reporting provides financial information about an entity in the period between the release of the entity’s last set of full financial statements and the announcement of the results for the current financial period. It is intended that an interim financial report should provide an update on the last set of full financial statements and focus on new activities, events and circumstances. It should be prepared so that it can be read in conjunction with the entity’s most recent full financial statements, and it should not duplicate information that has been previously reported.

IAS 34 defines an ‘interim financial report’ as a financial report containing either a complete set of financial statements (as described in IAS 1) or a set of condensed financial statements for an interim period.

Where an entity publishes a complete set of financial statements in its interim financial report, the entity should describe the report as complying with IFRS only if it has complied with the provisions of IAS 34 and presentation and disclosure requirements of other IFRS. An entity should disclose its interim financial report complying with IAS 34 if the report is prepared only in accordance with the provisions of IAS 34.

How should a set of condensed financial statements be described? An entity is preparing its interim financial report. It opts to present a full set of primary statements (balance sheet, income statement, statement of comprehensive income, statement of changes in equity and cash flow statement) but only the selected explanatory notes that are required by IAS 34. The entity should disclose the fact that its interim financial report is prepared in accordance with IAS 34. The interim financial report cannot be described as complying with, for example, ‘those standards issued by the IASB’, because the omission of disclosures means that they do not comply with the requirements of all applicable standards and interpretations in full. The interim financial report should be described as a ‘set of condensed interim financial statements’, despite the fact that the primary statements are complete. However, the full balance sheet, income statement, statement of comprehensive income and statement of changes in equity should be prepared in accordance with IAS 1, and the full cash flow statement should be prepared in accordance with IAS 7.

If an entity publishes full financial statements for the interim period, rather than condensed interim financial statements, it is required to comply with IAS 1. This means that all of the items required to be presented in the financial statements by IAS 1 should be included in the interim financial statements.

IAS 34 encourages (but does not require) publicly traded entities to make the interim report available no later than 60 days after the end of the interim period.

If the reporting entity’s most recent annual financial statements were prepared on a consolidated basis, the interim report should be prepared on the same basis. To publish an interim report that dealt only with the reporting entity, and not with its subsidiaries, would not be consistent or comparable with the most recent annual financial statements. If the most recent consolidated financial statements included the parent entity’s financial statements, the interim financial report can do so, but this is not a requirement.

IAS 34 applies to interim financial reports that are described as complying with International Financial Reporting Standards.

Interim financial reports are financial reports containing either a complete set of financial statements (as described in IAS 1) or a set of condensed financial statements (as described later in this chapter) for an interim period. An interim period is a financial reporting period shorter than a full financial year.

Publicly traded entities encouraged to provide interim financial reports

IAS 34 does not contain any rules as to which entities should publish interim financial reports, how frequently, or how soon after the end of an interim period. The Standard notes that governments, securities regulators, stock exchanges, and accountancy bodies often require entities with publicly traded debt or equity to publish interim financial reports, and that those regulations will generally specify the frequency and timing of such reports. However, IAS 34 encourages publicly traded entities:

• to provide interim financial reports at least as of the end of the first half of their financial year; and
• to make their interim financial reports available no later than 60 days after the end of the interim period.

No requirement for interim reports to comply with IAS 34

Each financial report, annual or interim, is evaluated on a stand-alone basis for compliance with IFRS Standards. It is important to note that entities that prepare annual financial statements in accordance with IFRS Standards are not precluded from preparing interim financial reports that do not comply with IFRS Standards, provided that the interim report does not state that it is IFRS-compliant. The fact that an entity has not published interim financial reports during a financial year, or that it has published interim financial reports that do not comply with IAS 34, does not prevent the entity’s annual financial statements from conforming to IFRS Standards, if they are otherwise IFRS-compliant.

Reference to IFRS Standards in preliminary interim earnings announcement IAS 34 does not address the content of preliminary interim earnings announcements (i.e., those earnings announcements issued shortly after the end of an interim period that disclose abbreviated preliminary financial information for the interim period just ended). IAS 34 does state, however, that if an interim financial report is described as complying with IFRS Standards, it must comply with all of the requirements of IAS 34. Therefore, if any reference to IFRS Standards is made in a preliminary interim earnings announcement that does not comply with IAS 34, the following statement (or something substantively similar), should be included in that earnings release. “While the financial figures included in this preliminary interim earnings announcement have been computed in accordance with International Financial Reporting Standards (IFRS Standards) applicable to interim periods, this announcement does not contain sufficient information to constitute an interim financial report as that term is defined in IFRS Standards. The directors expect to publish an interim financial report that complies with IAS 34 in March 20X2.”

Content of an interim financial report

Minimum components of an interim financial report

Entities reporting in accordance with IAS 34 are required to include in their interim financial reports, at a minimum, the following components:

• a condensed statement of financial position;
• a condensed statement or condensed statements of profit or loss and other comprehensive income;
• a condensed statement of changes in equity;
• a condensed statement of cash flows; and
• selected explanatory notes.

If, in its annual financial statements, an entity presents items of profit or loss in a separate statement as described in IAS 1, it should also present interim condensed information in a separate statement.

Note that the titles of the financial statements listed in IAS 34 are as reflected in IAS 1. Entities are permitted to use titles for those statements other than those used in IAS 34 (e.g., balance sheet, cash flow statement). An entity would be expected to use the same titles in its interim financial report as are used in its annual financial statements.

If additional information to the minimum components set out above is included in the interim report, this information should be presented in a manner that is consistent with that in the full annual financial statements.

Periods required to be presented in an interim financial report

Periods for which each financial statement is required to be presented

IAS 34 requires interim reports to include interim financial statements (whether condensed or complete) for the periods listed in the following table.

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Statements required for entities that report half-yearly – example   Current Comparative Statement of financial position at 30 June 20X9 31 December 20X8 Statement(s) of profit or loss and other comprehensive income – 6 months ended 30 June 20X9 30 June 20X8 Statement of changes in equity – 6 months ended 30 June 20X9 30 June 20X8 Statement of cash flows – 6 months ended 30 June 20X9 30 June 20X8

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Statements required for entities that report quarterly – example   Current Comparative Statement of financial position at 30 June 20X9 31 December 20X8 Statement(s) of profit or loss and other comprehensive income – 6 months ended – 3 months ended 30 June 20X9 30 June 20X9 30 June 20X8 30 June 20X8 Statement of changes in equity – 6 months ended 30 June 20X9 30 June 20X8 Statement of cash flows – 6 months ended 30 June 20X9 30 June 20X8

Entities with seasonal businesses

The requirements of IAS 34, as discussed, specify the minimum periods for which interim financial statements are to be presented. However, entities may wish to provide additional information. For example, an entity whose business is highly seasonal is encouraged to disclose financial information relating to the 12 months up to the end of the interim period, and comparative information for the equivalent 12-month period in the prior year.

Requirement for a ‘third’ statement of financial position in specified circumstances does not apply to interim financial reports For annual financial statements, IAS 1 requires the presentation of a statement of financial position at the beginning of the preceding period in specified circumstances when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements or when it reclassifies items in its financial statements. However, in line with the general principles established in IAS 1, this requirement does not apply to interim financial reports. This is further confirmed by IAS 1 which explains that the Board decided not to reflect in IAS 34 its decision to require the inclusion of a statement of financial position at the beginning of the preceding period in a complete set of financial statements in specified circumstances. Consequently, in condensed interim financial statements, an entity is only required to include those comparatives required by IAS 34 as listed.

Change of financial year end

IAS 34 does not consider the circumstances when there is a change in the financial year end of the reporting entity. IAS 34 requires the presentation of comparative information for the statement(s) of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for ‘comparable’ periods. Accordingly, in preparing the interim financial report based on the new financial year end, it may be preferable for the entity to present comparative information for the same interim period, which may not have been the basis for the interim financial information previously reported.

Comparative interim periods when reporting period changes – example Entity A’s reporting period ends 31 March. It also prepares a half-year interim financial report under IAS 34. It prepared full-year financial statements for the reporting period ended 31 March 20X1. Subsequently, it published a half-year report for the six months ended 30 September 20X1. In December 20X1, Entity A changes its reporting period end from 31 March to 31 December and prepares ‘annual’ financial statements for the nine months ended 31 December 20X1. IAS 34 requires that the statement(s) of profit or loss and other comprehensive income for an interim period should include comparative information for the “comparable interim periods … of the immediately preceding financial year”. In many circumstances, presenting a comparative period that covers the period from 1 January 20X1 to 30 June 20X1 may be preferable to the period from 1 April 20X1 to 30 September 20X1 because this would enable users to compare trends over time, particularly in a seasonal business. However, based on the particular facts and circumstances, other presentations may be appropriate – in particular when local regulations prescribe the comparative period(s) to be presented following a change in reporting period.

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Comparative financial statements for first interim financial reports When an entity is preparing its first interim financial report under IAS 34, unless the report relates to the first period of operation, it should generally include comparative information as discussed.  In the exceptional circumstances in which the entity does not have available in its accounting records the financial information needed to prepare the comparative interim financial statements, the entity has no choice but to omit prior period comparative financial statements. In the circumstances described, however, the omission of the comparative financial statements represents a non-compliance with IAS 34. Therefore, the interim financial report cannot be described as complying with IAS 34 without an ‘except for’ statement regarding the omission of prior period comparative financial statements. Both the fact of, and the reason for, the omission should be disclosed.

Consolidated financial statements

If the entity’s most recent annual financial statements were consolidated statements, then the interim financial report should also be prepared on a consolidated basis. If the entity’s annual financial report included the parent’s separate financial statements in addition to consolidated financial statements, IAS 34 neither requires nor prohibits the inclusion of the parent’s separate statements in the entity’s interim report.

Entity has disposed of all of its subsidiaries during the interim period If an entity has disposed of all of its subsidiaries during the interim period, such that it has no subsidiaries at the end of the interim reporting period, it should prepare its interim financial statements on a consolidated basis because it had subsidiaries at some point during the interim period. The statement(s) of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows should include the impact of the subsidiaries up to the date(s) of disposal and the effects of the disposal(s).

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Complete interim financial statements to include IAS 34 disclosures When an entity takes the alternative of presenting a complete set of interim financial statements, the form and content of the financial statements must conform to the requirements of IAS 1 for a complete set of financial statements, in addition to complying with the requirements of IAS 34. [IAS 34 & 9] Therefore, the measurement and disclosure requirements of all relevant Standards apply. These include all measurement and disclosure requirements of IAS 34 and, in particular, details of significant events and transactions required under IAS 34 and the explanatory disclosures listed in IAS 34.

Alternatively, an entity may choose to present interim financial statements containing the minimum required information prescribed by IAS 34; the resultant financial statements are described as ‘condensed’.

Application of general principles to condensed interim financial statements

IAS 34 does not repeat the general principles underlying the preparation of financial information set out in IAS 1. However, preparers need to refer to IAS 1 itself for clarification in this regard.

IAS 1 states, in part, that “this Standard does not apply to the structure and content of condensed interim financial statements prepared in accordance with IAS 34 Interim Financial Reporting. However, paragraphs 15 – 35 apply to such financial statements”.

IAS 1 which therefore apply when preparing condensed financial statements for interim purposes, deal with:

• fair presentation and compliance with IFRS Standards;

• going concern;
• accrual basis of accounting;
• materiality and aggregation; and

• offsetting.

Look-forward period for going concern assessment at interim reporting periods The going concern requirements set out in IAS 1 apply to interim financial reports. The guidance in IAS 1 states that “in assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period”. Therefore, a 12-month period from the interim reporting date should be considered when an entity is assessing its ability to continue as a going concern for the purpose of preparing an interim financial report.

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Line items in condensed interim financial statements In prescribing the minimum content, IAS 34 uses the terms ‘headings’ and ‘subtotals’, thereby seeming to imply that not all of the line items that were presented in the most recent annual financial statements are necessarily required. Such an interpretation would do a disservice, however, to a user of the financial statements who is trying to assess trends in the interim period in relation to financial years. Therefore, the phrase should be interpreted, in nearly all cases, to mean the line items that were included in the entity’s most recent annual financial statements. The line items in most published financial statements are already highly aggregated and it would be difficult to think of a line item in the annual statement of profit or loss and other comprehensive income, in particular, that would not also be appropriate in an interim statement of profit or loss and other comprehensive income. For example, it would not be appropriate to begin a condensed statement of profit or loss and other comprehensive income with the gross profit figure, omitting figures for revenue and cost of goods sold. For the statement of financial position, a literal interpretation of ‘each of the headings and subtotals’ might lead to a condensed interim statement of financial position that presented lines only for total current assets, total non-current assets, total current liabilities, total non-current liabilities and total equity, which will generally be insufficient for trend analysis. For the statement of changes in equity, all material movements in equity occurring in the interim period should be disclosed separately. In the case of the statement of cash flows, some aggregation of the lines from the annual statement may be appropriate, but subtotals for ‘operating’, ‘investing’ and ‘financing’ only are unlikely to be sufficient. The IFRS Interpretations Committee confirmed this assessment in an agenda decision issued in July 2014, when it was noted that the Committee did not expect that a three-line presentation alone would meet the requirements in IAS 34. The Committee also drew attention to the requirements of IAS 34, in particular that: an entity should include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the entity since the end of the last annual reporting period. Information disclosed in relation to those events and transactions should update the relevant information presented in the most recent annual financial report; and 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. If a particular category of asset, liability, equity, income, expense or cash flow was so material as to require separate disclosure in the financial statements in the most recent annual financial statements, such separate disclosure will generally be appropriate in the interim financial report. Further aggregation would only be anticipated when the line items in the annual statements are unusually detailed. Under IAS 34, additional line items should be included if their omission would make the condensed interim financial statements misleading. Therefore, a new category of asset, liability, income, expense, equity or cash flow arising for the first time in the interim period may require presentation as an additional line item in the condensed interim financial statements. A category of asset, liability, income, expense, equity or cash flow may be significant in the context of the interim financial statements even though it is not significant enough to warrant separate presentation in the annual financial statements. In such cases, separate presentation on the face of the condensed interim financial statements may be required.

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Use of the term ‘condensed’ The requirements discussed will result in the presentation of at least some statements that include all of the line items, headings and subtotals that were presented in the most recent annual financial statements. The question then arises as to whether such statements should, in practice, be described as ‘condensed’. Given that the notes supplementing the interim financial statements are limited, the presentation package taken together is condensed from what would be reported in a complete set of financial statements under IAS 1 and other Standards. In such circumstances, the information presented in the statement(s) of profit or loss and other comprehensive income, statement of financial position, statement of changes in equity and statement of cash flows is condensed – even if the appearance of the statements has not changed. If these interim financial statements were not described as ‘condensed’, a user might infer that they constitute a complete set of financial statements under IAS 1, which they do not. A complete set of financial statements must include a full note presentation consistent with the annual presentation.

Earnings per share

General requirement to present earnings per share

When an entity is within the scope of IAS 33, it should present basic and diluted earnings per share (EPS) for the interim period in the statement that presents the components of profit or loss for that period.

If an entity presents a separate statement of profit or loss as described in IAS 1, basic and diluted EPS should be presented in that statement.

Measures of earnings per share required to be presented in interim financial reports IAS 34 does not make any specific reference to the requirements of IAS 33 regarding which measures of basic and diluted EPS should be presented. Nevertheless, to enable users to compare trends, the same EPS figures should be presented in the interim financial report as in the annual financial report. Therefore, irrespective of whether the interim financial statements are described as ‘condensed’, the following should be presented in the interim financial report, with equal prominence for all periods presented: basic and diluted EPS for profit or loss attributable to the ordinary equity shareholders of the parent entity; and if a discontinued operation is reported, basic and diluted EPS for profit or loss from continuing operations attributable to the ordinary equity holders of the parent entity. These should be presented for each class of ordinary shares that has a different right to share in profit for the period. EPS figures should be provided for all periods presented in the interim financial report. Therefore, for an entity presenting information separately for the current interim period and cumulatively for the year-to-date, with comparative amounts for each, EPS (both basic and diluted) should be presented for the same four periods.

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Interim period diluted earnings per share on a year-to-date basis Any change in assumptions for the purposes of computing diluted EPS during the interim period may result in an apparent anomaly. For example, the sum of diluted EPS for the first quarter and diluted EPS for the second quarter may not always equal diluted EPS for the half-year period. Diluted EPS for the first quarter is based on assumptions that were valid during and at the end of that quarter. IAS 33 states that diluted EPS for prior periods should not be restated for changes in the assumptions used or for conversions of potential ordinary shares into outstanding ordinary shares. Therefore, diluted EPS for the second quarter and for the half-year period may be based on different assumptions than those used in computing diluted EPS for the first quarter. Also, certain outstanding potential ordinary shares may have been ‘antidilutive’ (i.e., their conversion to ordinary shares would increase EPS) in the first quarter and, therefore, they may have been excluded from first quarter diluted EPS. In the second quarter and on a six-month basis, however, they may have been dilutive and would, therefore, be included in diluted EPS. For example, the following information relates to a quarterly reporter.   Quarter 1 Quarter 2 Half year   (1 January to 31 March) (1 April to 30 June) (1 January to 30 June) Net income CU1,000 CU1,000 CU2,000 Ordinary shares outstanding 1,000 1,000 1,000 Weighted average quoted market price of ordinary shares CU8 CU20 CU14 Throughout the half-year, the entity had outstanding 100 options each allowing the holder to purchase one ordinary share for CU10. No options were exercised. For the second quarter interim report, IAS 34 requires the presentation of statement(s) of profit or loss and other comprehensive income for the second quarter and for the half-year. Calculations of basic and diluted EPS are as follows.   Quarter 1 Quarter 2 Half year   (1 January to 31 March) (1 April to 30 June) (1 January to 30 June) Basic EPS CU1,000/1,000 = CU1,000/1,000 = CU2,000/1,000 = CU1.00 CU1.00 CU2.00 Diluted EPS – numerator CU1,000 CU1,000 CU2,000 Diluted EPS – denominator 1,000* 1,050 1,028.57 (1,000 + 50**) (1,000 + 28.57***) Diluted EPS CU1 CU0.9524 CU1.9444   *The exercise price of the options is greater than the average market price of shares during the period. Therefore, the options are ignored in computing diluted EPS.   **If the share options were exercised, the proceeds of issue of CU1,000 would equate to an issue of 50 shares at the average market price of CU20. Therefore, the remaining 50 shares are assumed to have been issued for no consideration and are added to the number of ordinary shares outstanding for the computation of diluted EPS.   ***If the share options were exercised, the proceeds of issue of CU1,000 would equate to an issue of 71.43 shares at the average market price of CU14. Therefore, the remaining 28.57 shares are assumed to have been issued for no consideration and are added to the number of ordinary shares outstanding for the computation of diluted EPS. Note that the sum of diluted EPS for the first quarter (CU1.00) and diluted EPS for the second quarter (CU0.9524) does not equal diluted EPS for the first half-year (CU1.9444).

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Calculation of weighted average number of shares for an interim reporting period – example A publicly traded entity is required to prepare interim financial statements in accordance with IAS 34. Thirty days before the end of the six-month interim period, the entity issues a substantial number of shares. These new shares should be weighted for inclusion in the denominator of the interim earnings per share calculation based on the number of days that the shares are outstanding as a proportion of the total number of days in the interim period. A reasonable approximation of the weighted average is sufficient in many circumstances. The number of shares issued should be weighted by the number of days that the shares are outstanding (i.e., 30 days) divided by the number of days in the period (i.e., 182 days).

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Earnings per share calculation at interim reporting date for an entity with contingently issuable shares – example Company X, a publicly traded entity reporting on a calendar year basis, purchased Subsidiary Y on 1 January. The consideration for the acquisition was CU100 million plus an additional 20,000 Company X ordinary shares if Subsidiary Y earns net income in the year following the acquisition of CU10 million or more. By 30 June of Year 1, Subsidiary Y had earned net income of CU15 million. Although the 20,000 shares would be issuable if the end of the contingency period were 30 June instead of 31 December, the 20,000 ordinary shares should be excluded from the denominator for the calculation of basic EPS for the six months ended 30 June, because events could transpire in the following six months that would cause Company X not to issue the shares (e.g., Subsidiary Y could lose CU6 million in the following six months). The contingently issuable ordinary shares should be included in the denominator for the calculation of diluted EPS for the six months ended 30 June because, based on the circumstances on that date, the contingency is met.

Significant events and transactions

Entities are required to provide an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the entity since the end of the last annual reporting period. The information disclosed in relation to those events and transactions should update the relevant information presented in the most recent annual financial report.

The disclosure requirements of IAS 34 are based on the assumption that anyone reading the interim financial report will have access to the most recent annual financial report. Not all of the supplementary notes in the annual financial report are required for interim reporting purposes, because this would result in repetition, or the reporting of relatively insignificant changes.

The following is a (non-exhaustive) list of events and transactions for which disclosures would be required if they are significant:

(a) the write-down of inventories to net realisable value and the reversal of any such write-down;

(b) recognition of a loss arising from the impairment of financial assets, property, plant and equipment, intangible assets, assets arising from contracts with customers, or other assets, and the reversal of any such impairment loss;

(c) the reversal of any provisions for the costs of restructuring;

(d) acquisitions and disposals of items of property, plant and equipment;

(e) commitments for the purchase of property, plant and equipment;

(f) litigation settlements;

(g) corrections of prior period errors;

(h) changes in the business or economic circumstances that affect the fair value of the entity’s financial assets and financial liabilities, whether those assets or liabilities are recognised at fair value or amortised cost;

(i) any loan default or any breach of a loan agreement that has not been remedied on or before the end of the reporting period;

(j) related party transactions;

(k) transfers between levels of the fair value hierarchy used in measuring the fair value of financial instruments;

(l) changes in the classification of financial assets as a result of a change in the purpose or use of those assets; and

(m) changes in contingent liabilities or contingent assets.

Individual IFRS Standards provide guidance regarding disclosure requirements for many of the items listed in IAS 34. 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

Other information required to be disclosed

In addition to disclosing significant events and transactions in accordance with IAS 34, the following information should be disclosed in the notes to the interim financial statements or elsewhere in the interim report:

(a) a statement that the same accounting policies and methods of computation are followed in the interim financial statements as were followed in the most recent annual financial statements or, if those policies or methods have been changed, a description of the nature and effect of the change;

(b) explanatory comments about the seasonality or cyclicality of interim operations;

(c) the nature and amount of items affecting assets, liabilities, equity, net income or cash flows, that are unusual because of their size, nature or incidence;

(d) the nature and amount of changes in estimates of amounts reported in prior interim periods of the current financial year, or changes in estimates of amounts reported in prior financial years;

(e) issues, repurchases and repayments of debt and equity securities;

(f) dividends paid (aggregate or per share), separately for ordinary shares and other shares;

(g) for entities required by IFRS 8 to disclose segment information in their annual financial statements, the following segment information:

(i) revenues from external customers, if included in the measure of segment profit or loss   reviewed by the chief operating decision maker or otherwise regularly provided to the chief operating decision maker;

(ii) intersegment revenues, if included in the measure of segment profit or loss reviewed by       the chief operating decision maker or otherwise regularly provided to the chief operating decision maker;

(iii) a measure of segment profit or loss;

(iv) a measure of total assets and liabilities for a particular reportable segment if such amounts are regularly provided to the chief operating decision maker and if there has been a material change from the amount disclosed in the last annual financial statements for that         reportable segment;

(v) a description of differences from the last annual financial statements in the basis of segmentation or in the basis of measurement of segment profit or loss; and

(vi) a reconciliation of the total of the reportable segments’ measures of profit or loss to the entity’s profit or loss before tax expense (tax income) and discontinued operations. However, if an entity allocates to reportable segments items such as tax expense (tax income), the entity may reconcile the total of the segments’ measures of profit or loss to profit or loss after those items. Material reconciling items should be separately identified and described in that reconciliation;

(h) events after the interim period that have not been reflected in the interim financial statements;

(i) the effect of changes in the composition of the entity during the interim period, including business combinations, obtaining or losing control of subsidiaries and long-term investments, restructurings and discontinued operations;

(j) in respect of financial instruments, the disclosures about fair value required by IFRS 13 and IFRS 7;

(k) for entities becoming, or ceasing to be, investment entities, the disclosures in IFRS 12; and

(l) the disaggregation of revenue from customers required by IFRS 15.

If the information required to be disclosed under IAS 34 is not disclosed in the interim financial statements, it should be incorporated into the interim financial statements by a cross-reference to another statement (e.g., the management commentary or the risk report). When this option is taken, entities should ensure that such information is available to users of the financial statements on the same terms as the interim financial statements and at the same time; if entities do not comply with this requirement, the interim financial report is incomplete.

The Board has clarified that the requirement that disclosures incorporated by cross-reference should be made available ‘on the same terms’ as the financial statements means that users of the financial statements should have access to such information on the same basis as they have for accessing the financial statements from where the reference is made.

The information required to be presented under IAS 34 is normally reported on a financial year-to-date basis.

Narrative discussion of interim trends and prospects for the full financial year Entities are required to provide explanatory comments about the seasonality or cyclicality of interim operations under IAS 34. Discussion of changes in the business environment (such as changes in demand, market shares, prices and costs) and discussion of prospects for the full current financial year of which the interim period is a part will normally be presented as part of a management discussion and analysis or financial review, outside of the notes to the interim financial statements.

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Reassessment of segment aggregation criteria in interim period Whether an entity is required to reassess the aggregation criteria in IFRS 8 in each interim period when determining reportable segments depends on the circumstances. In the absence of a change in the structure of an entity’s internal organisation during an interim period that causes the composition of its reportable segments to change, the entity generally does not need to reassess the aggregation criteria in each interim period. However, if a change in facts and circumstances suggests that aggregation of operating segments in the current or a future period is no longer appropriate, management should reassess the aggregation criteria in the period in which the change occurred. If an entity identifies different reportable segments as a result of this reassessment, it should provide the disclosures required by IFRS 8. For example, assume that an entity has appropriately aggregated two segments in prior periods. However, in the current interim period, the segments no longer exhibit similar economic characteristics because of a change in gross profit margin and sales trends. Management does not believe the trends will converge in future periods. In this case, the entity should reassess the aggregation criteria in the current interim period to determine its appropriate reportable segments.

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Business combinations after the reporting period IFRS 3 requires detailed disclosures for business combinations that occurred after the end of the reporting period but before the financial statements are authorised for issue unless the initial accounting for that business combination is incomplete at the time the financial statements are authorised for issue. To the extent that disclosures are not provided because the initial accounting is not yet complete, the acquirer describes which disclosures could not be made and the reasons why they could not be made. If a business combination occurs after the end of an interim reporting period but before the interim financial statements are authorised for issue, the entity should provide the disclosures regarding the business combination in accordance with IFRS 3. IAS 34 requires disclosure of information that is significant to an understanding of the changes in financial position and performance of an entity since the end of the last annual reporting period. Consistent with the principle in IAS 34 that an interim period is a discrete period to which the same policies and procedures should be applied as at the end of the financial year, all of the IFRS 3 disclosure requirements for business combinations should be applied to interim periods in the same way as to annual financial statements. IAS 34 requires events subsequent to the end of the interim period that have not been reflected in the interim financial statements to be disclosed, and IFRS 3 sets out the specific disclosures required in relation to business combinations after the reporting period. Consequently, the disclosures required by IFRS 3 should be provided for material business combinations after the end of the interim period, unless the initial accounting for the business combination is incomplete by the time the interim report is authorised for issue. In such circumstances, consistent with IFRS 3, the interim report should describe which disclosures could not be made and why. In many jurisdictions, this is likely to be more prevalent in interim reports due to shorter reporting deadlines for interim reports as compared to annual financial statements.

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Comparative information required for note disclosures IAS 34 does not explicitly require that comparative information be provided for the supplementary note disclosures in condensed interim financial statements. However, the notes support the financial statements for which comparative information is required. Therefore, although IAS 34 contains no express reference to the requirement for comparative information, it is recommended that IAS 1 be applied, and that comparative information be provided for all numerical information, and for narrative and descriptive information to the extent that it is relevant to an understanding of the current interim period’s financial statements. For the purposes of interim financial statements, the ‘previous period’ referred to in IAS 1 should be taken to mean the equivalent interim period. Therefore, for example, when disclosures are made under IAS 34 in respect of business combinations or share issues on a financial year-to-date basis, comparative information for the equivalent year to date should be reported. While the share issue results in dilution and as such is important in understanding the changes to EPS, it may also be significant to understanding the financial position at the end of the interim period. If this is the case, additional comparative information supporting the statement of financial position may be required. When an entity prepares a complete set of financial statements for interim reporting purposes, then all of the requirements of IAS 1 apply and, therefore, comparative information is required for the explanatory note disclosures under IAS 34.

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Inclusion of interim period disclosures in next annual financial statements If an item of information is deemed significant and, therefore, is disclosed in an entity’s interim financial report, that item of information will not necessarily be disclosed in the entity’s next annual financial report that includes the interim period in which the disclosure was made. Under IAS 34, interim period disclosures are determined based on materiality levels assessed by reference to the interim period financial data. The Standard recognises that the notes to interim financial statements are intended to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the entity since the end of the last annual reporting period. A disclosure that is useful for that purpose may not be useful in the annual financial statements. To illustrate, IAS 34 requires disclosure of the nature and amount of any item that affects assets, liabilities, equity, net income or cash flows if it is unusual because of its nature, size or incidence. Such an item may be unusual in size in the context of a single quarter or half-year period, for example, but not so with respect to the full financial year. As discussed, IAS 34 does require disclosure in the notes to the annual financial statements when an estimate of an amount reported in an earlier interim period is changed significantly during the final interim period of the financial year but a separate financial report is not produced for that final interim period.

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Inclusion of interim period disclosures in subsequent interim periods of the same financial year If an item of information is deemed significant and, therefore, is disclosed in an entity’s interim financial report for the first quarter, that item of information will not necessarily be disclosed in the interim financial reports for the subsequent quarters of the same financial year. Under IAS 34, materiality is assessed by reference to each interim period’s financial data. Therefore, an item that is considered material in the context of one interim period may not be material for subsequent interim periods of the same financial year. IAS 34 indicates that note disclosures are normally on a year-to-date basis. For example, the explanatory notes in the interim financial report at 30 June for a 31 December year-end entity that reports quarterly will cover the period 1 January to 30 June. An item of information that was deemed significant in the first quarter report and, therefore, was disclosed in the notes to the interim financial report for the three months ending 31 March, may not be significant on a 30 June six-month year-to-date basis. If that is the case, disclosure in the six-month interim financial report is not required.

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Is it appropriate to describe a condensed interim financial report as having been prepared ‘in accordance with IFRS Standards’? Because condensed interim financial reports do not include all of the disclosures required by IAS 1 and other Standards, they do not meet this requirement. They are, therefore, more appropriately described as having been prepared ‘in accordance with IAS 34 Interim Financial Reporting‘ (as required by IAS 34) rather than ‘in accordance with IFRS Standards’. When presenting condensed interim financial information, the entity needs to consider compliance with Standards at two levels: compliance with all of the recognition, measurement and presentation requirements contained in extant Standards and Interpretations (compliance with the disclosure requirements of Standards other than IAS 34 is not required); and compliance with the disclosure requirements and the recognition and measurement principles for interim reporting purposes specified by IAS 34.

Materiality

IAS 34 states that, in deciding how to recognise, measure, classify, or disclose an item for interim financial reporting purposes, materiality should be assessed in relation to the interim period financial data. In making assessments of materiality, it should be recognised that interim measurements may rely on estimates to a greater extent than measurements of annual financial data.

IAS 1 defines material information and requires separate disclosure of material items, including (for example) discontinued operations, and IAS 8 requires disclosure of changes in accounting estimates, errors, and changes in accounting policies. Neither of the two Standards contain quantified guidance as to materiality.

While materiality judgements are always subjective, the overriding concern is to ensure that an interim financial report includes all of the information that is relevant to understanding the financial position and performance of the entity during the interim period. Therefore, it is generally inappropriate to base quantitative estimates of materiality on projected annual figures.

In October 2018, the Board made amendments to IAS 34 as a consequence of the amendments to the definition of material in IAS 1 and IAS 8.

The amendments refined the definition of material in IAS 1 and added additional explanatory guidance. The Board stated that the amendments are intended to make the definition easier to understand and are not intended to alter the underlying concept of materiality in IFRS Standards. The amendments also replaced the definition of material in IAS 8 with a reference to the definition of material in IAS 1 to avoid the duplication of the definition in the Standards.

The amendments are effective prospectively for annual periods beginning on or after 1 January 2020 with earlier application permitted. If an entity applies these amendments for an earlier period, it shall disclose that fact. These amendments are applied at the same time an entity applies the amendments to the definition of material in IAS 1 and IAS 8.

In September 2017, the Board issued Practice Statement 2 Making Materiality Judgements, which is non-mandatory, to provide guidance on how to make materiality judgements when entities prepare financial statements. The Practice Statement contains specific guidance and examples for entities preparing interim financial reports.

Disclosure in annual financial statements

It is quite common that entities do not prepare a separate report for the final interim period in a financial year. This will be determined on the basis of the rules of local regulators. For example, an entity with a reporting period to 31 December, which reports half-yearly, may not be required to produce a separate interim report covering the period from July to December.

In such circumstances, IAS 34 requires disclosure in the notes to the annual financial statements if an estimate of an amount reported in an earlier interim period is changed significantly during the final interim period. The nature and amount of that change in estimate are required to be disclosed. This requirement is intended to provide the user of the financial statements with details of changes in estimates in the final interim period consistent with those generally required by IAS 8. The Standard does state, however, that this disclosure requirement is intended to be narrow in scope, relating only to the change in estimate, and it is not intended to introduce a general requirement to include additional interim period financial information in the entity’s annual financial statements.

IAS 34 makes clear that, when such a change in estimate occurs and is required to be disclosed in the annual financial statements, the disclosure represents additional interim period financial information. Consequently, although the disclosure is made in the annual financial statements, materiality will generally be determined by reference to interim period financial data.

Accounting policies

Same accounting policies as annual financial statements

The accounting policies applied in the interim financial statements should be consistent with those applied in 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.

Entities are required to disclose in their interim financial reports that this requirement has been met.

Changes in accounting policies

Preparers of interim financial reports in compliance with IAS 34 are required to consider any changes in accounting policies that will be applied for the next annual financial statements, and to implement the changes for interim reporting purposes. Such changes will generally encompass:

• changes required by an IFRS that will be effective for the annual financial statements; and
• changes that are proposed to be adopted for the annual financial statements, in accordance with the requirements of IAS 8, on the basis that they will result in the financial statements providing reliable and more relevant information.

If there has been any change in the entity’s accounting policies since the most recent annual financial statements, the interim financial report is required to include a description of the nature and effect of the change.

If a new Standard or Interpretation is not effective until after the end of the annual reporting period, an entity may decide in the second interim period to adopt this Standard or Interpretation in advance of its effective date for its annual financial statements. The fact that the new Standard or Interpretation was not adopted in its first interim period financial statements does not generally preclude the entity from adopting a new policy in the second interim period or at the end of the annual reporting period.

Adoption of new Standard part-way through a financial year – example Company X prepares its financial statements in accordance with IFRS Standards and has a December year end. It also prepares interim financial reports in accordance with IAS 34 on a quarterly basis. The Board issues a new Standard that is effective “for annual periods beginning on or after 1 July 20X3”, with earlier adoption permitted. The Standard does not include any specific transition provisions so that, in accordance with IAS 8, it is required to be applied retrospectively. Company X’s first annual period beginning on or after 1 July 20X3 is the period from 1 January 20X4 to 31 December 20X4. Company X is not required to adopt the new Standard in interim financial reports relating to interim periods beginning before 1 January 20X4. This is true irrespective of whether Company X’s interim financial reports contain a set of condensed financial statements or a complete set of financial statements. However, if Company X decides to adopt the new Standard in advance of its effective date (e.g., in its annual financial statements to 31 December 20X3), then Company X should apply the new Standard for interim periods beginning on or after that earlier date of adoption.

Restatement of previously reported interim periods

A change in accounting policy, other than one for which the transition provisions are specified by a new IFRS, should be reflected by:

• restating the financial statements of prior interim periods of the current financial year, and the comparable interim periods of prior financial years that will be restated in annual financial statements in accordance with IAS 8; or
• 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 earliest date practicable.

IAS 8 states that retrospective application of a new accounting policy is impracticable when an entity cannot apply it after making every reasonable effort to do so.

IAS 34 states that an objective of these principles is to ensure that a single accounting policy is applied to a particular class of transactions throughout an entire financial year. That is not to say that voluntary changes in accounting policy part-way through the year are prohibited. Such changes are permitted, provided that the conditions of IAS 8 are met. What IAS 34:44 requires is that, when a change in accounting policy is adopted at some point during the year, the amounts reported for earlier interim periods should be restated to reflect the new policy.

IAS 34 explains that allowing accounting changes to be reflected as of an interim date within the financial year would allow two differing accounting policies to be applied to a particular class of transactions within a single financial year. This would result in interim allocation difficulties, obscured operating results, and complicated analysis and understandability of interim period information.

Changes in accounting policies part-way through a financial year – example Company A reports quarterly. In its first quarter interim report for the current year, it used the same accounting policies as in its latest annual financial statements. Company A wants to make a voluntary change in accounting policy starting in its second quarter interim report. It can demonstrate that the change “results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows” as required by IAS 8. Company A is permitted to make this change in accounting policy in its second quarter interim report provided that the conditions of IAS 8 are met. IAS 34 requires that the interim financial statements for the first quarter of the year be restated to reflect the new accounting policy adopted in the second quarter. As IAS 34 suggests, what is prohibited is allowing accounting changes to be reflected as of an interim date within a financial year. Accounting changes can be made at an interim date within a financial year, with retrospective application to earlier interim periods of that year.

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Disclosure of information in condensed interim financial statements regarding new or amended accounting standards adopted in the current financial year IAS 34 requires the inclusion of “selected explanatory notes” (IAS 34) and describes in IAS 34 the required content of those notes. In respect of changes in accounting policy (including those resulting from the adoption of a new or amended standard), IAS 34 require “a statement that the same accounting policies and methods of computation are followed in the interim financial statements as compared with the most recent annual financial statements or, if those policies or methods have been changed, a description of the nature and effect of the change“. (Emphasis added) IAS 34 also expresses a broader principle that “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.” The detailed disclosure requirements of IAS 8 in respect of changes in accounting policy or of the new or amended standard itself in respect of transition do not apply unless specifically added to IAS 34 by means of a consequential amendment. However, judgement will be required to determine the appropriate disclosures necessary to satisfy the requirements of IAS 34 as well as investor expectations of information on changes in, for example, reported profits. The appropriate level of disclosure will differ depending on the extent and nature of the changes resulting from each new or amended standard and any additional requirements on the disclosure of changes in accounting policies or on the presentation of comparative information applied by relevant regulators should also be taken into account. In assessing the necessary disclosures in their condensed interim financial statements, entities should consider, inter alia, the need to provide information on the following. The new accounting policies applied At a basic level, the disclosures should include a meaningful explanation of the new accounting policies themselves, which will not have been included in the description of accounting policies in the previous annual report. A high-quality description of an accounting policy will not simply repeat the requirements of the relevant accounting standard, but will explain how those requirements have been applied to the entity’s particular facts and circumstances. The transitional method adopted and any choices provided by the new or amended standard The new or amended standard may provide entities with an element of choice in how it is applied. This can be in respect of transition (for example, several IFRS Standards provide a choice between retrospective adoption and adoption from a ‘date of initial application’ with an adjustment to opening equity balances reflecting the change arising at that date) or on an ongoing basis (either allowing a choice of accounting policies or providing practical expedients to simplify the application of complex requirements). Disclosure of the transition method applied and, when their effect is significant, how an entity has applied any other explicit choices provided by new or amended standards will normally be appropriate. The key judgements and estimates applied The adoption of a new or amended standard often requires the application of careful judgement and the use of estimation. Whilst the requirements of IAS 1 on key judgements and sources of estimation uncertainty do not apply to condensed interim financial statements, an indication of the judgements taken and estimates made in applying complex new requirements should be considered if necessary to help a user of the condensed interim financial statements understand the entity’s application of the new standard. The quantitative effects When previously stated figures are restated or a cumulative effect is recognised in equity at the date of initial application of a new or amended standard, those changes should be disclosed and explained. For annual financial statements, disclosure of the effect of changes in accounting policy on the current year financial statements is required by IAS 8 (unless a new standard states specifically that these disclosures are not required). This requirement is not included in IAS 34, but entities should consider whether quantitative or qualitative information on the current year effect of the new accounting requirements is necessary to provide, as per IAS 34, an understanding of “the effect of the change”. In addition, whilst not directly applicable to condensed interim financial statements, the transitional disclosures required in annual financial statements might be referred to in considering whether any more specific quantitative disclosures should be provided. Presentation and restatement of comparative information The requirements for comparative information in condensed interim financial statements are included in IAS 34 itself and are only to provide a statement of financial position at the end of the preceding financial year and a statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the comparable period(s) in the previous financial year. Unlike in annual financial statements, there is no requirement in IAS 34 to provide an additional comparative statement of financial position when a change in accounting policy is applied retrospectively. When comparative information will be changed in the annual financial statements due to retrospective application of a new or amended standard, the comparative information provided in condensed interim financial statements should likewise be restated with appropriate quantitative disclosures and explanation of those changes.