As 25 Interim Financial Reporting

Accounting Standard 25Accounting Standard 25Interim Financial ReportingInterim Financial Reporting

Contents

• Objective• Scope• Form and Content of an interim financial statement• Period for which interim financial statements are

required to be presented• Disclosure in Annual Financial Statements• Recognition and Measurement• Examples of applying the recognition and

measurement principles• Comparison• Issues

Objective

• To prescribe :− Minimum content of an interim financial

report;− Principles for recognition and

measurement in a complete or condensed financial statements for an interim period

Scope

• Does not mandate which enterprises should be required to present interim financial reports

• If an enterprise is required or elects to prepare and present interim financial report -the standard should be complied with

• The recognition and measurement principles as laid down in this standard should be applied in respect of information required to be given unless the statute requires otherwise.

Scope...

• Cash flow statement, complete or condensed to be prepared if the enterprise presents cash flow statement for the purpose of its annual financial report

Minimum Components of an Interim Financial Report

• An interim financial report should include-condensed balance sheet-condensed statement of profit and loss-condensed cash flow statement and - selected explanatory notes

Form & Content of an Interim Financial Statement

• Complete set of financial statements should conform to the requirements applicable to annual financial statements.

• Condensed set of financial statements should at minimum have each headings or subheadings that were included in the latest annual financial statements.

Form & Content...

• If EPS is disclosed in the annual financial statement then the same needs to be disclosed on the face of the interim statement of profit and loss;

• If consolidated annual financial statements are prepared then interim consolidated statements need to be prepared in addition to the separate financial statements.

Condensed Balance Sheet

Figures at the end of Figures at the end of current interim period the previous

accounting year

I Sources of Funds1 Capital2 Reserve and surplus3 Minority interests (in case of consolidated

financial statements)4 Loans funds:

(a) Secured loans(b) Unsecured loans

TotalII Application of funds1 Fixed assets

(a) Tangible fixed assets(b) Intangible fixed assets

Condensed Balance Sheet

2 Investments3 Current assets, loans and advances

(a) Inventories(b) Sundry debtors(c) Cash and bank balances (d) Loans and advances (e) Others

Less: Current liabilites and provisions(a) Liabilities(b) Provisions

Net Current assets4 Miscellaneous expenditure to the extent of

written off or adjusted5 Profit and loss acount

Total

Figures at the end of Figures at the end of current interim period the previous

accounting year

Three months Corresponding three Year-to-date Year-to-dateended months of the previous figures for figures for the

accounting year current period previous year

1 Turnover2 Other Income

Total3 Changes in inventories of

finished goods and work in progress

4 Cost of Raw materials andconsumables used

5 Salaries, wages and other staffcosts

6 Other expenses7 Interest8 Depreciation and amortisations

Total

Condensed Profit and Loss

Three months Corresponding three Year-to-date Year-to-dateended months of the previous figures for figures for the

accounting year current period previous year

9 Profit or loss from ordinaryactivities before tax

10 Extraordinary items11 Profit or loss before tax12 Tax expense13 Profit or loss after tax14 Minority Interests (in case of

consolidated financials statements)

15 Net profit or loss for the periodEarnings Per share1. Basic Earnings Per Share2. Diluted Earnings Per Share

Condensed Profit and Loss

Condensed Cash Flow Statement

Year-to-date figures for Year-to-date figures forthe current period the previous year

1 Cash flows from operating activities2 Cash flows from investing activities3 Cash flows from financing activities4 Net increase/(decrease) in cash and

cash equivalents5 Cash and cash equivalents at

beginning of period6 Cash and cash equivalents at end of

period

Selected Explanatory Notes• The following minimum notes should be given

● a statement that the same accounting policies as those followed in the latest annual financial statements or if there have been changes then a description of the nature and effect of the change;

● explanatory comments about seasonality of interim operations;

● the nature and amount of item affecting assets, liabilities, equity, net income, or cash flows that are unusual because of their nature, size or incidence; - AS 5

● the nature and amount of changes in estimates of amounts reported in prior interim periods of current financial year or changes in estimates in prior financial years if those changes have a material effect in current interim period;

Selected Explanatory Notes...- issuances, buy-backs, repayments and restructuring of debt,

equity and potential equity shares;- dividend, aggregate or per share, seperately for equity and others;- segment revenue, segment capital employed and segment result

for the enterprise’s primary segment;- effect of changes in composition of enterprise during the

interim period, such as amalgamations, acquisition or disposal of subsidiaries and long term investments, restructuring and discontinuing operations;

- material changes in contingent liabilities since last annual balance sheet date.

Selected Explanatory Notes...

• The above information should normally be reported on a financial year to date basis. Any event or transactions that are material for understanding of current interim period should also be disclosed.

• Disclosures under other Accounting standards to be made if complete set of financial statements are prepared. Those disclosures are not required if condensed financial statements are prepared.

Periods for which interim financial statements are required to be presented

1

Balance Sheet:As at September 30, 2001 March 31, 2001

Statement of Profit and Loss:6 months ending September 30, 2001 September 30, 2000

Cash Flow Statement6 months ending September 30, 2001 September 30, 2000

Enterprise Preparing and Presenting Interim Financial Reports Half-Yearly

An enterprise whose financial year ends on March 31, presents financial statements (condensed orcomplete) for following periods in its half-yearly financial report as of September 30, 2001


1

September 30, 2001:



3 months ending September 30, 2001 September 30, 2000


An enterprise whose financial year ends on March 31, presents financial statements (condensed orcomplete) for following periods in its interim financial report for the second quarter ending

Enterprise Preparing and Presenting Interim Financial Reports Quarterly


1

ending September 30, 2001:







An enterprise whose financial year ends on March 31, may present financial statements condensed or complete) for following periods in its interim financial report for the second quarter

Interim Financial Reports QuarterlyEnterprise whose Business is highly Seasonal Preparing and Presenting

Disclosure in Annual Financial Statements

• An enterprise may not prepare separate financial report for final interim period. However, disclosures need to be made in the annual financial statements of significant change in the estimates. e.g.estimates relating to inventory write downs, restructuring, or impairment losses reported in the earlier interim periods.

Recognition and Measurement

• In deciding how to recognise, measure, classify, or disclose an item materiality should be assessed in relation to the interim period financial data

• Accounting policies applied should be same except for accounting policy changes made after the date of the latest annual financial statements.

• Year to date measurements may involve changes in estimates but the principles for recognising assets, liabilities, income and expenses for the interim periods are the same as in the annual financial statements

• Current financial statement will reflect any changes in the estimates of amounts reported in prior interim periods of financial year. The amounts reported in prior interim periods are not retrospectively adjusted.

Recognition and Measurement ...

• Revenues received seasonally or occasionally within a financial year should be recognised when they occur.

• Costs incurred unevenly during a financial year should be anticipated or deferred for interim reporting purposes if it is appropriate to anticipate or defer that type of cost at the end of the financial year.

• Preparation of interim financial reports require greater use of estimation as compared to annual financial reports.

Recognition and Measurement ...• Change in accounting policy, other than one for which the

transition is specified by an Accounting Standard should be reflected by restating the financial statements of prior interim periods of the current financial year.

• Transitional ProvisionOn the first occasion the interim financial report is presented in conformity with this standard the following need not be presented in respect of all interim periods of the current financial year:- a comparative statements of profit and loss for comparative

interim periods of the preceding financial year;- a comparative cash flow statement for the comparable year to

date period of the preceding financial year.

Examples of Applying the recognition and measurement principles

• Gratuity and other defined benefit schemes- actuarial valuation not necessary

• Major planned periodic maintenance or overhaul- not to anticipate unless an event has caused the enterprise to have a present obligation

• Year end bonuses- to be anticipated only if the bonus is a legal obligation and a reliable estimate of the obligation can be made

• Intangible assets- deferring costs as assets in an interim balance sheet to meet the recognition criteria later in financial year is not justified.

• Provisions - obligation should exist on the reporting date


• Other planned but irregularly occurring costs- to be recognised only if the costs have been incurred.

• Contractual or anticipated purchase price changes- contractual rebates and discounts are recognised but discretionary rebates & discounts are not recognised.

• Depreciation and amortisation- only on assets owned during the interim period.

• Inventories- similar as year end• Foreign currency translation gains and losses- same

principles as at year end ie in accordance with AS 11• Impairment of Assets- same impairment tests, recognition

and reversal criteria as at year end.


• Measuring income tax expense for interim period

● expense is accrued using the estimated average annual effective income tax rate

● estimated average annual effective income tax rate should reflect the applicable tax rate applicable to the full year’s earnings.

● separate estimated average annual effective income tax rate is determined for each governing taxation law and applied individually to the interim period pre-tax income under such laws


- if different categories of income (such as capital gains or income earned in particular industries) a separate rate is applied for each individual category of interim period pre-tax income.

- if the financial reporting year and the income tax year differ, income tax expense for interim period of that financial reporting year is measured using separate weighted average estimated effective tax rates for each of the income tax years applied to the portion of pre-tax income earned in each of those income tax years.

- estimated annual effective income-tax rate considers tax exemptions/ deductions available on annual basis.

- tax benefit relating to one time events should be recognised in computing tax expenses for that interim period.

- tax carry forward loss should be reflected in the computation of the estimated average effective income tax rate


1st

Quarter2nd

Quarter3rd

Quarter4th

QuarterAnnual

Pre-taxprofits

150 (50) (50) (50) 0

TaxExpense

52.5 (17.5) (17.5) (17.5) 0

(Amount Rs. In lacs)

1st

Quarter2nd

Quarter3rd

Quarter4th

QuarterAnnual

Pre-taxprofits

100 100 100 100 400

TaxExpense

30 30 40 40 140

1st

Quarter2nd

Quarter3rd

Quarter4th

QuarterAnnual

Pre-taxprofits

100 100 100 100 400

TaxExpense

30 30 30 30 40

Tax Laws Carry forwards

Difference in Financial Reporting year and Tax year

ComparisonParticulars Indian IAS US GAAPScope For companies who

are required or electto present

Encourages publicly tradedenterprises

Publicly traded companies

Content − Balance Sheet− Profit and loss− Cash flow− Selected

explanatory notes

AdditionallyStatement showing(i) all changes in equity(ii) changes in equity

other than thosearising from capitaltransaction withowners &distribution toowners

Balance sheet not requiredFunds flow to be given.

Periods for which interimfinancial statements arerequired to be prepared

− Half-yearly orquarterly

− Profit and loss-current quarter,cumulative year todate andcomparable for thepreceding year

Similar to Indian

− Half-yearly not required− Current quarter, current

year to date or last twelvemonths to date togetherwith comparable data forthe preceding year

Notes Material events subsequent toend of interim period thathave not been reflected in thefinancial statements ofinterim period

THANK YOUTHANK YOU

Documents

As 25 Interim Financial Reporting