What are the Interim Financial Statements?

Explained in Short

Interim Financial Statements are those sets of financial statements that provide details for less than one year and can either be complete or condensed versions. Publicly-held companies must issue such financial statements at quarterly intervals.

The purpose is to provide other users and investors with 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 periodAccounting PeriodAccounting Period refers to the period in which all financial transactions are recorded and financial statements are prepared. This might be quarterly, semi-annually, or annually, depending on the period for which you want to create the financial statements to be presented to investors so that they can track and compare the company’s overall performance.read more and are not available for long after financial year close.

While allocating investment capital, investors find periodic snapshots, which eventually lead to higher liquidityLiquidityLiquidity is the ease of converting assets or securities into cash.read more.

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Features

This concept can be applied to any period term, such as the 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 while. 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 a few forms are not required or can be represented in a more summarized format.Accrual Basis: Accrued expenses can vary within interim reportingInterim ReportingInterim reporting is the process of presenting the financial statements for a period less than a year, i.e., monthly, quarterly, or semi-annually usually by the public company. A company’s internal auditors review the interim report.read more 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 revenuesThe RevenuesRevenue 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 generated by the business significantly. Interim statements may reveal periods of significant losses and profits in such cases, which are not evident in the annual financial statementsThe Annual Financial StatementsAnnual Financial Statements refers to the annual presentation of the entity’s financial performance comprising a Balance Sheet, statement of profit and loss, statement of changes in equity, cash flow statement, and notes to the financial statements. It provides information to the stakeholders for making financial decisions about the business.read more.

Are Interim Financial Statements Audited?

Given the cost and time required for an audit and the financial information requirement, it is mostly not audited and is also condensed; only the year-end annual financial statements are audited.

Its quarterly financial statements are instead reviewed if a company is publicly-held. An outside auditor may conduct the review, but the activities are much reduced from those employed in an audit encompassed by a review. Therefore, reading the complete and previously issued annual financial statements and reports becomes essential.

Accounting practices in these statements must be regular with the accounting practices, which will be followed in the annual financial statements. The interim statements add up to the amounts reported in the official income statement for the year.

Importance

Now we will discuss a few other vital contents:

IAS 34 ‘interim financial reporting’ requires that the interim financial statements either condensed or complete shall include:

  • 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 positionStatement Of Financial PositionStatement of Financial Position represents the current financial status of an entity in terms of assets and liabilities. This statement is used by the stakeholders and shareholders as it affects their investing decisions.read more.Two separate statements, a profit or loss statement, and another comprehensive income statement for the current interim period cumulatively for the current financial year with comparatives for the comparable interim periods. Or a single profit or loss statement and other comprehensive income statement for the current interim period and cumulatively for the current financial year, with comparatives for the comparable interim periods.For the current financial year to date a statement of changes in equityStatement Of Changes In EquityStatement of changes in equity is the adjustment of opening and closing balances of equity during a particular reporting period. It explains the connection between a company’s income statement and balance sheet. It also includes all those transactions not captured in these two financial statements.read more showing changes in equity cumulatively, with a comparative statement for the comparable year to dateYear To DateThe term Year to Date (YTD) is applied when referring to the time between the beginning of the fiscal year and the current day.read more period of the previous immediate financial year andFor the current financial year to date, a statement of cash flowsStatement Of Cash FlowsA Statement of Cash Flow is an accounting document that tracks the incoming and outgoing cash and cash equivalents from a business.read more, with a comparative statement for the comparable year to date period of the previous immediate financial year.

To report a financial company’s performance, it is applied before the beginning of a fiscal yearFiscal YearFiscal Year (FY) is referred to as a period lasting for twelve months and is used for budgeting, account keeping and all the other financial reporting for industries. Some of the most commonly used Fiscal Years by businesses all over the world are: 1st January to 31st December, 1st April to 31st March, 1st July to 30th June and 1st October to 30th Septemberread more and at the end of a fiscal year. A series of condensed statements are also included in these statements, which help cover the status of the company and its economic position. The company’s position, financial status, income, mechanism of cash flowCash FlowCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more, and other related changes are many of the attributes included in these.

Conclusion

A public financial report covering less than one year is basically what interim financial statements are. Typical examples may be a simple quarterly reportQuarterly ReportQuarterly reports are unaudited financial reports that are summarized versions of financial statements released by public companies every three months (quarter) to comply with compliance requirements.read more 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 can timely communicate their financial performance to the investors and financial analysts.

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This article has been a guide to what are interim financial statements. Here we discuss interim financial reporting features and their importance and examples. You may learn more about accounting from the following articles –

  • Commercial SubstanceTop 10 Limitations of Financial StatementAccrued ExpensesConsolidated Financial Statement