CHAPTER 19: PAS 34 - INTERIM FINANCIAL REPORTING

Interim Financial Reporting

Interim financial reporting means the preparation and presentation of financial statements for a period of less than one
year.

PAS 34 prescribes the minimum content of an interim financial report and the principles for recognition and
measurement in complete or condensed financial statements for an interim period.

Interim financial reports may be presented monthly, quarterly or semiannually.

Quarterly interim reports are the most common

However, publicly traded entities are encouraged to provide interim financial reports at least semiannually and such
reports are to be made available not later than 60 days after the end of interim period.

Frequency of interim reporting

PAS 34 does not mandate which entities are required to publish interim financial reports, how frequently, or how soon
after the end of an interim period.

Philippine jurisdiction

The Securities and Exchange Commission and Philippine Stock Exchange require entities covered by the reportorial
requirements of Revised Securities Act to file quarterly interim financial reports within 45 days after the end of each of
the first three quarters.

The SEC also requires entities covered by the Rules on Commercial Papers and Financing Act to file quarterly financial
reports within 45 days after each quarter-end.

Entities that provide interim financial reports in conformity with Philippine Financial Reporting Standards shall conform
to the recognition, measurement and disclosure requirements set out in the standard.

Components of an interim financial report

PAS 34, paragraph 8, provides that an interim financial report shall include, at a minimum, the following components:

a. Condensed statement of financial position

b. Condensed statement of comprehensive income
c. Condensed statement of changes in equity
d. Condensed statement of cash flows
e. Selected explanatory notes

Paragraph 8A provides that an entity can present items of profit or loss in a separate condensed income statement.

Nothing in the standard is intended to prohibit or discourage an entity from publishing a complete set of financial
statements, rather than condensed financial statements and selected explanatory notes.
CHAPTER 19: PAS 34 - INTERIM FINANCIAL REPORTING

In other words, PAS 34 allows an entity to publish a set of condensed financial statements or complete set of financial
statements in the interim financial report.

“Condensed” means that each of the headings and subtotals presented in the entity’s most recent annual financial
statements is required but there is no requirement to include greater detail unless this is specifically required.

Disclosure of compliance with PFRS

PAS 34, paragraph 19, provides that if an entity’s interim financial report is in compliance with Philippine Financial
Reporting Standards, such fact shall be disclosed.

An entity shall not describe an interim financial report as complying with PFRS unless it complies with all of the
requirements of each applicable Philippine Financial Reporting Standard.

Selected explanatory notes

The selected explanatory notes are designed to provide an explanation of significant events and transactions arising
since the last annual financial statements.

PAS 34, assumes the financial statement users have an access to the entity’s most recent annual report.

As a result, the standard reiterates that it is a superfluity to provide the same notes in the interim financial report that
appeared in the most recent annual financial report.

Examples of disclosures required in a condensed interim financial report include:

a. Writedown of inventories to net realizable value and the reversal of such a writedown
b. Recognition of a loss from the impairment of property, plant and equipment and intangible assets and the
reversal of such an impairment loss
c. The reversal of any provision for restructuring
d. Acquisitions and disposal 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 in previously reported financial data.
h. Changes in the economic circumstances that effect fair value of financial data
i. Any debt default or any breach of a debt covenant that has not been corrected subsequently
j. Related party transactions
k. Changes in the classification of financial assets
l. Contingent liabilities and contingent assets

Presentation of comparative interim statements

1. Statement of financial position

a. Statement of financial position at the end of current interim period

b. Comparative statement of financial position at the end of preceding year.

2. Income statement
CHAPTER 19: PAS 34 - INTERIM FINANCIAL REPORTING

a. Income statement for the current interim period

b. Income statement cumulatively for the current financial year to date

c. Comparative income statement for the comparable interim period of the preceding year

d. Comparative income statement cumulatively for the comparable financial year to date of the preceding year

3. Statement of comprehensive income

a. Statement of comprehensive income for the current interim period

b. Statement of comprehensive income cumulatively for the current financial year to date

c. Comparative statement of comprehensive income for the comparable interim period of the preceding year
d. Comparative statement of comprehensive income cumulatively for the comparable financial year to date of the
preceding year

4. Statement of changes in equity

a. Statement of changes in equity cumulatively for the current financial year to date.

b. Comparative statement of changes in equity for the comparable financial year to date of the preceding year.

5. Statement of cash flows

Illustration – Half-yearly

If an entity publishes interim financial reports half-yearly, the following comparative financial statements are presented
on June 30, 2020.

Statement of financial position:

On June 30, 2020 December 31, 2019
Statement of comprehensive:
6 months ending June 30, 2020 June 30, 2019
Statement of cash flows:

6 months ending June 30, 2020 June 30, 2019

Statement of changes in equity:
6 months ending June 30, 2020 June 30, 2019

Another illustration – Quarterly

If an entity publishes interim financial reports quarterly, the following comparative financial statements are included in
the quarterly interim financial report on June 30, 2020:
CHAPTER 19: PAS 34 - INTERIM FINANCIAL REPORTING

Statements of financial position:

On June 30, 2020 December 31, 2019
Statement of comprehensive income:

3 months ending June 30, 2020 June 30, 2019

6 months ending June 30, 2020 June 30, 2019
Statement of cash flows:
6 months ending June 30, 2020 June 30, 2019
Statement of changes in equity:
6 months ending June 30, 2020 June 30, 2019

Basic principles

1. PAS 34, paragraph 28, provides that an entity shall apply the same accounting policies in the interim financial
statements as are applied in the annual financial statements.

However, the frequency of an entity's reporting whether annual, half-yearly or quarterly shall not affect the
measurement of the annual results.

Therefore, measurements for interim reporting purposes shall be made on a year to date basis.

2. Revenues from products sold or services rendered are generally recognized for interim reports on the same basis
as for the annual period.

3. Costs and expenses are recognized as incurred in an interim period.

a. Expenses associated directly with revenue are matched against revenue in those interim periods in which the
related revenue is recognized.
b. Expenses not associated directly with revenue are recognized in interim periods as incurred or allocated over
the interim periods benefited.

4. Paragraph 21 provides that if the business is highly seasonal, in addition to the current interim period financial
statements, the entity is encouraged to disclose financial information:

a. For the latest 12 months

b. Comparative information for the prior comparable 12-month period

5. Paragraph 41 provides that the preparation of interim financial reports generally requires a greater use of
estimation than annual financial reports.

Inventories

Paragraph 25 of Appendix B of PAS 34 provides that inventories are measured for interim financial reporting by the same
principles as at financial year-end.

This simply means that inventories shall be measured at the lower Of cost or net realizable value even for interim
purposes.

Seasonal, cyclical or occasional revenue

Seasonal, cyclical or occasional revenue 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 reporting period.

Thus, dividend revenue, royalties and government grants shall be recognized in the interim period when they occur.
CHAPTER 19: PAS 34 - INTERIM FINANCIAL REPORTING

Uneven costs

Costs that are incurred unevenly during an entity's financial year shall be anticipated or deferred for interim purposes
only if it is also appropriate to anticipate or defer that type of cost at the end of the financial year.

Year-end bonuses

Recognition of bonus

A bonus is anticipated for interim purposes if and only if:

a. The bonus is a legal obligation or past practice would make the bonus a constructive obligation for which the
entity has no realistic alternative but to make the payment.
b. A reliable estimate of the obligation can be made.

Irregular costs

Certain costs are expected to be incurred irregularly during the financial year, such as charitable contribution and
employee training cost.

Such costs are generally discretionary and even though they are planned shall not be anticipated as of an interim date
simply because the costs have not yet been incurred.

Depreciation and amortization

Depreciation and amortization for an interim period shall be based only on assets owned during that interim period.

Asset acquisitions or dispositions planned for later in the financial year shall not be taken into account.

Paid vacation and holiday leave

Paid vacation and holiday leave shall be accrued for interim purposes because these are enforceable as legal
commitments.

Gain and loss

Gain or loss from disposal of property, gain or loss from discontinued operation and other gain or loss shall not be
allocated over the interim periods.

The gain is reported in the interim period when realized and the loss is reported in the interim period when incurred.

Income tax

Interim period income tax expense shall reflect the same general principles of income tax accounting applicable to
annual reporting.

Paragraph 12 of Appendix B of PAS 34 states that the interim period income tax expense is accrued using the annual
effective income tax rate applied to the pretax income of the interim period.

Illustration

An entity has the following income before tax and annual effective tax rate for the first three quarters of the current
year:

Income before tax Tax rate

First quarter 5,000,000 30%
Second quarter 6,000,000 30%
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Third quarter 8,000,000 25%

Total income 19,000,000

Computation of income tax for each quarter

First quarter (30% x 5,000,000) 1,500,000

Second quarter (30% x 6,000,000) 1,800,000
Total income tax for the first two quarters 3,300,000

Cumulative income tax for three quarters

(25% x 19,000,000) 4,750,000
Income tax for first two quarters (3,300,000)
Third quarter – income tax expense 1,450,000

Difference in financial reporting year and tax year

Simply stated, the effective tax rate of a particular tai year is applied to the pretax income of the interim period in the
same tax year.

Illustration

An entity's financial reporting year ends June 30 and it reports quarterly. This means that the financial reporting is from
July 1 of one year to June 30 of next year. The tax year ends December 31.

The entity reported the following income before tax for the financial year from July 1, 2020 to June 30, 2021:

First quarter July 1, 2020 to September 30, 2020 1,000,000

Second quarter October 1, 2020 to December 31, 2020 2,000,000
Third quarter January 1, 2021 to March 31, 2021 2,500,000
Fourth quarter April 1, 2021 to June 30, 2021 4,000,000

The effective income tax rate is 30% for 2020 and 25% for 2021.

The income tax expense for each quarter of the financial reporting year is computed as follows:

First quarter (30% x 1,000,000) 300,000

Second quarter (30% x 2,000,000) 600,000
Third quarter (25% x 2,500,000) 625,000
Fourth quarter (25% x 4,000,000) 1,000,000
Total income tax expense 2,525,000

Change in accounting policy

PAS 34, paragraph 43, provides that change in accounting policy shall be reflected by restating the financial statements
of prior interim periods of the current year and the comparable interim periods of the prior financial year.