Interim Financial Reporting (PAS 34)

PAS 34 refers to the preparation and presentation of financial information for a period of less than
one year (can either be quarterly or semi-annually). It greatly helps the investors, creditors, and
others to understand an entity’s capacity to generate earnings and cash flows and its financial
condition and liquidity.
This specific standard will prescribe the minimum content of an interim financial report and to
prescribe the principles for recognition and measurement in complete or condensed financial
statements for an interim period.
Which entities are required to submit an interim financial report?
PAS 34 does not mandate which entities should be required to publish interim financial reports,
how frequently, or how soon after the end of an interim period. However, governments, securities
regulators, stock exchanges, and accountancy bodies often require entities whose debt or equity
securities are publicly traded to publish interim financial reports.
When preparing the interim financial statements, they are still required to prepare them in
accordance with the PFRS.
Publicly traded entities are encouraged to provide interim financial reports that conform to the
recognition, measurement, and disclosure principles set out in this Standard. Specifically, publicly
traded entities are encouraged:
(a) to provide interim financial reports at least as of the end of the first half of their financial year;
and
(b) to make their interim financial reports available not later than 60 days after the end of the
interim
period.
Philippine Stock Exchange requires publicly traded companies to report quarterly regarding their
financial condition, financial performance, and cash flows for the benefit of the investing public.
What are the minimum contents of an interim financial report?
An interim financial report shall include, at a minimum, the following components:
(a) a condensed statement of financial position;
(b) a condensed statement or condensed statements of profit or loss and other
comprehensive income;
(i) a condensed single statement; or
(ii) a condensed separate income statement and a condensed statement of
comprehensive income;
(c) a condensed statement of changes in equity ;
(d) condensed statement of cash flows; and
(e) selected explanatory notes.

What should be disclosed in the interim financial reports?

Significant events and transactions
An entity shall include in its interim financial report 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 shall update the relevant information presented in the most
recent annual financial report.

If there are events and transactions disclosed in the most recent annual financial report, it
unnecessary to disclose them in the interim financial report.

The following is a list of events and transactions for which disclosures would be required if
they are significant: (the list is not exhaustive)
(a) the write-down of inventories to net realizable value and the reversal of such a write-
down;
(b) recognition of a loss from the impairment of financial assets, property, plant and
equipment, intangible assets, or other assets, and the reversal of such an 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
recognized at fair value or amortized cost;
(i) any loan default or breach of a loan agreement that has not been remedied on or before
the end of the reporting period; and
(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.

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
An entity shall include the following information, in the notes to its interim financial statements, if
not disclosed elsewhere in the interim financial report. The information shall normally be reported
on a financial year-to-date basis.

(a) 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.
(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 nature, size 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) the following segment information (disclosure of segment information is required in an
entity’s interim financial report only if PFRS 8 Operating Segments requires that entity to
disclose segment information in its annual financial statements):
(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) total assets for which there has been a material change from the amount
disclosed in the last annual financial statements.
(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.
(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 shall be separately identified and described in that reconciliation.
(h) Events after the interim period that have not been reflected in the financial
statements for the interim period.
(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. In the case of
business combinations, the entity shall disclose the information required by
PFRS 3 Business Combinations.

Recognition and measurement

An entity shall apply the same accounting policies in its interim financial statements as are applied
in its annual financial statements.
a. Revenues received seasonally, cyclically, or occasionally
Revenues that are received seasonally, cyclically, or occasionally within a financial year
shall not be anticipated or deferred as of an interim date if anticipation or deferral would
not be appropriate at the end of the entity’s financial year.

Examples include dividend revenue, royalties, and government grants. Additionally, some
entities consistently earn more revenues in certain interim periods of a financial year than
in other interim periods, for example, seasonal revenues of retailers. Such revenues are
recognized when they occur.

b. Costs incurred unevenly during the financial year

Costs that are incurred unevenly during an entity’s financial year shall be anticipated or
deferred for interim reporting purposes if, and only if, it is also appropriate to anticipate or
defer that type of cost at the end of the financial year.
Applying the recognition and measurement principles
Views in interim financial reporting
1. Integral view – annual operating costs and expenses incurred which clearly benefits the
entire year are estimated and then allocated to the interim periods benefited based on
forecasted revenue, sales volume or simply time period.

Example:

Davao Company prepares quarterly interim financial reports. The entity sells electrical
goods and normally 5% of customers claim on their warranty. The provision in the first
quarter was calculated at 5% of sales to date which amounted to P10M. However, in the
second quarter, a design fault was found and warranty claims were expected to be 10%
for the whole year. Sales for the second quarter amounted to P15M. What would be the
provision charged in the second quarter’s interim income statement?

Answer:

Sales in the 1Q 10,000,000.00

Estimated warranty rate 5%
Total warranty expense for the 1Q 500,000.00

Sales in the 1Q 10,000,000.00

Sales in the 2Q 15,000,000.00
Total sales as of the 2Q 25,000,000.00
Estimated warranty rate 10%
Total warranty expense as of the 2Q 2,500,000.00
Less : Warranty expense recorded in 1Q 500,000.00
Total warranty expense for the 2Q 2,000,000.00

2. Independent or discrete view – annual operating costs and expenses are

recognized in the interim period in which they are incurred, irrespective of the number of
interim periods benefited, unless deferral or accrual would be allowed in the annual
financial statements.

Example:

On July 1, 20X1 Dolor Company incurred a casualty loss of P300,000. The net income
for the year 20X1 was expected to be P500,000. In the income statement for the quarter
ended September 30, 20X1 how much of this casualty loss should be disclosed
separately?

Answer:

The casualty loss is reported in the period in which it is incurred. In this case, the
casualty loss amounting to P300,000 which is incurred July 1, 20X1 is to be reported in
the third quarter.
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