Definition of Interim Financial Statements
Interim Financial Statements are the financial statements prepared by a reporting entity for a period ending before the last day of the annual reporting period, i.e., less than a year.
They are mainly prepared to provide details about the company’s financial health to the public and investors before the completion of the reporting year.
Explanation
It is normally prepared quarterly or half-yearly by public sector companies. They comprise income statements, balance sheets, and statements of cash flows, just like the annual financial statements, and comprise the same line items. The statements can either be presented in a complete or a condensed form.
There may be some difference between interim and annual financial statements concerning disclosure requirements; some disclosures may not be required in the interim financial statement, or they can be presented more broadly. Also, the interim financial statements are not required to be audited. They serve to update the users of the financial statements about the company’s performance, and the users do not need to wait until the end of the reporting period.
How to Make Interim Financial Statements?
Preparing an interim financial statement can seem to be a complex and time-consuming task. However, nowadays, accounting softwares have made this task a lot easier for organizations. The interim financial statement should comprise the items below in full or condensed form.
- Profit & Loss or Income statement
- Statement of Balance Sheet
- Cash Flow Statement
- Selected notes to the accounts
All these financial statements are to be prepared on a quarterly or a half-yearly basis, and the below points should be kept in mind while preparing them:
- The form and content of the interim financial statements should be in line with the annual statements and comply with the annual statement requirement.
- Interim statements must include each heading and sub-heading as were included in the most recent published financial statements.
- New headings and sub-heading can be mentioned if omission can lead to misleading information.
- Selected explanatory notes should be properly mentioned as required.
- Only those notes that are significant to the company’s financial position change since the last reporting date should be included.
- Comparative statements from the previous year should be included, i.e., Profit and loss, balance sheet, and cash flow statements from the immediately preceding financial year are to be included.
All three interim financial statements and explanatory notes to the account should be prepared to keep in mind the above list which is selective but not exhaustive.
Examples of Interim Financial Statements (With Excel Template)
Let’s take an example to understand the calculation of Interim Financial Statements in a better manner.
Example #1
Interim Balance Sheet as At 30.06.2019
(Amounts Expressed in Thousands of Euroland Currency Units)
| Particulars | Notes | Quarter ended | |
| 30.06.2019 | 30.06.2018 | ||
| Assets | |||
| Non-Current Assets | |||
| Goodwill | 7,397 | 5,880 | |
| Other intangible assets | 25,950 | 19,973 | |
| Property, plant, and equipment | 56,584 | 23,400 | |
| Investments accounted for using the equity method. | 925 | 777 | |
| Investment property | 12,732 | 12,487 | |
| Other long-term assets | 104 | 80 | |
| Other long-term financial assets | 4,082 | 3,895 | |
| Total Non-Current Assets | 1,07,774 | 66,492 | |
| Inventories | 32,400 | 29,605 | |
| Prepayments and other short-term assets | 203 | 211 | |
| Trade and other receivables | 28,407 | 22,297 | |
| Derivative financial instruments | 673 | 813 | |
| Cash and cash equivalents | 689 | 651 | |
| Other current assets | 42,539 | 9,797 | |
| Assets included in a disposal group are classified as held for sale. | – | 3,236 | |
| Total Current Assets | 1,04,911 | 66,610 | |
| Total Assets | 2,12,685 | 1,33,102 | |
| Equity | |||
| Equity attributable to owners of the parent: | |||
| Share capital | 15,820 | 12,270 | |
| Share premium | 40,045 | 4,465 | |
| Other components of equity | 580 | 720 | |
| Retained earnings | 61,060 | 42,171 | |
| Equity attributable to owners of the parent | 1,17,505 | 59,626 | |
| Non-controlling interest | 780 | 648 | |
| Total Equity | 1,18,285 | 60,274 | |
| Liabilities | |||
| Non-Current Liabilities | |||
| Pension and other employee obligations | 12,331 | 11,956 | |
| Borrowings | 51,918 | 25,931 | |
| Trade and other payables | 1,338 | – | |
| Deferred tax liabilities | 1,359 | 880 | |
| Other liabilities | 1,854 | 2,057 | |
| Total Non-Current Liabilities | 68,800 | 40,824 | |
| Current Liabilities | |||
| Provisions | 615 | 2,280 | |
| Pension and other employee obligations | 1,625 | 1,398 | |
| Borrowings | 6,508 | 5,163 | |
| Trade and other payables | 10,552 | 18,805 | |
| Current tax liabilities | 3,013 | 815 | |
| Contract and other liabilities | 3,287 | 3,160 | |
| Liabilities are included in a disposal group classified as held for sale. | – | 383 | |
| Total Current Liabilities | 25,600 | 32,004 | |
| Total Liabilities | 94,400 | 72,828 | |
| Total Equity and Liabilities | 2,12,685 | 1,33,102 | |
Need of Interim Financial Statements
The interim financial statements serve the following purposes in the organization:
- The interim financial statement helps estimate annual earnings based on the interim financial position.
- It helps in making cash flow projections or estimations.
- This helps identify significant turning points that can impact the company’s financial health.
- It helps in identifying and maintaining internal control procedures.
- It helps to keep investors and stakeholders up to date regarding the financial health of the business.
Interim Financial Statements vs Annual Financial Statements
There are below main points of difference between the interim financial statement and the annual financial statement:
|
Point of Difference |
Interim Financial Statements |
Annual Financial Statements |
| Inventory count | Physical inventory count is not done for interim statements due to the cost and time involved. Inventory calculation is done through alternative measures. | A physical inventory count is done to calculate the total value of the inventory. |
| Disclosures | Full disclosures are not required in interim financial statements. Disclosures impacting the business’s financial position should be included in the selected explanatory notes to the account. | Full disclosure with footnotes and other explanations regarding the financial statements is required. |
| Audit | The interim financial statement is required to be audited. | Annual financial statements are required to be audited. |
Importance of Interim Financial Statements
Interim financial statements are important due to the following reasons.
- It helps in keeping investors and stakeholders up to date regarding the financial health of the business.
- It helps big organizations in knowing whether their short-term achievements are in line with their long-term strategic objectives or not.
- The interim statement helps detect any error or material misstatement in the early stage, and corrective measures can be taken to correct and prevent these errors.
- The interim financial statement checks internal control procedures within the organization.
- It helps declare interim dividends, consequently leading to shareholders holding on to their investments.
Conclusion
Interim statements differ greatly from annual statements except for a few points. Though there is no mandated requirement, especially for small businesses, to publish interim statements, looking at the benefits seems to be an intelligent choice today.
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This is a guide to Interim Financial Statements. Here we discuss calculating the Interim Financial Statements, practical examples, and an Excel template. You may also look at the following articles to learn more –
