Interim Financial Statements

Interim financial statements are the financial statements released during the year between which annual statements are released (in general, interim statements are released quarterly, consolidated into yearly). These statements help businesses assess their performance at any time between the previous financial year and the current financial year statement release.

The interim financial statements can be prepared monthly, quarterly, bi-annually and even meant for a lesser period. These financial reports enable investors and other stakeholders be updated about the growth and progress of the companies they are associated with.

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 regular intervals. The most common type of interim statements are the quarterly statements that firms issue.  

The purpose is to provide other users and investors with updated information on the corporation’s operation. These are, therefore, also referred to as interim reports. These allow users to have a timelier look into a business’s operations instead of making them wait until the end of the accounting period and are not available for long after financial year close.

While allocating investment capital, investors find periodic snapshots, which eventually lead to higher liquidity.

These reports provide a clear picture of current cash flows and overall financial performance of a company and are used from time to time to help management make better and wiser business decisions and also let investors be aware of the current progress of the firm they have invested in. This, in turn, makes it easier for the latter to decide whether to continue investing in it or not.

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 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 significant losses and profits in such cases, which are not evident in the annual financial statements.

The International Accounting Standard (IASB) lists down some of the guidelines that companies must follow to ensure the interim statements comply with the rules and regulations. It suggests the standards to be maintained while preparing these statements, which are almost similar to the auditable annual reports. The accounting methods to be used for preparing these statements are also mentioned.

According to the IASB, the non-auditable interim statements must include a set of condensed statements. These reports must contain details about the financial position of a company, cash flows and income. They are also required to have notes of explanation for the changes in the equity, if any.

An interim financial statement consists of the following elements:

• A condensed balance sheet, which provides details of the financial position of a firm.
• A condensed statement of comprehensive income alone or a condensed income statement along with the former.
• A condensed statement, specifying the changes in equity.
• A condensed report on cash flows
• Explanation notes as required.

It is important to ensure that the contents or elements included in the interim financial statements abide by the specifications of International Financial Reporting Standards (IFRS).

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.

Let us consider the following instance to understand the interim financial statements meaning better:

Suppose company XYZ, which has been performing quite well, suddenly gets caught into a rumour trap, which makes investors doubtful about trusting the company with their money. As soon as the firm receives queries and realizes the doubtful state of mind of investors, it presents the interim financial report that it preferably made every three months.

Going through the report helps investors regain their trust on the company as it revealed the progress of it clearly. A quarterly report is the most common example of interim reports that firms prepare to remain updated and also keep investors update in case such scenarios of doubtfulness arise.

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 position.
• 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 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.

To report a financial company's performance, it is applied before the beginning of a fiscal year 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 flow, and other related changes are many of the attributes included in these.

This article has been a guide to what are Interim Financial Statements. We explain it along with its example, contents, requirements, audit, features and importance. You may learn more about accounting from the following articles –

• Commercial Substance
• Top 10 Limitations of Financial Statement
• Accrued Expenses
• Consolidated Financial Statement