Updated July 19, 2023
Definition of Interim Reporting
Interim reporting can be defined as statutory compliance imposed on any publicly held company or any other such organization for preparing and presenting its financial statement for a period shorter than the accounting period of one year i.e. either quarterly, half-yearly, etc, on the same accounting policies and principles or as prescribed by the regulatory authority providing insights about the operating performance during that period and financial position as on reporting date.
Explanation
Interim reporting is usually prepared to provide insights into operating performance and financial position for a shorter period of time. Therefore, to protect the interest of different stakeholders, these companies must present interim financial statements, which are used to provide information to investors, creditors, and even the company to make sound investment decisions. It forms the basis of communication for information that is directly or indirectly related to an enterprise’s accounting system and also helps periodically assess the company’s performance.
Objectives of Interim Reporting
Five basic objectives of interim reporting are identified, they are –
- Make Projection: Annual data proves insufficient in evaluating the progress and earnings projections of the company. Thus, interim reporting helps make early projections regarding cash flows and other company developments.
- Estimate Annual Earnings: Annual earnings can be estimated based on interim financial reports. Gain or loss in a quarter period helps properly estimate a company’s profit or loss at the end of the fiscal year.
- Identify Turning Points: Major company performance breakthroughs can be estimated and identified using interim reporting.
- Evaluate Management Performance: How well the company’s management performs can be evaluated using the results of interim financial reports.
- Supplement Annual Report: Along with the annual financial report, interim reporting helps in the periodic evaluation of the company’s financial performance, which forms a supplement for annual reports.
Examples of Interim Reporting
Following are the examples are given below:
Example #1 – Preparing Interim Profit and Loss A/c
From the following figures of Vital Inc., prepare IFS as on 30/06/2019.
| Particulars | Current Quarter | Previous year same quarter | Year Till date(Current year) | Year Till date (Previous year) |
| Sales | $1,00,000 | $60,000 | $2,00,000 | $1,20,000 |
| Operating expenses | $50,000 | $30,000 | $1,00,000 | $60,0000 |
| Employees salaries | $5,000 | $3,000 | $10,000 | $6,000 |
| Depreciation | $2,000 | $2,000 | $4,000 | $4,000 |
| Income Tax | $5,000 | $3,000 | $10,000 | $6,000 |
Solution:
Interim Statement of Profit & Loss Will be as follows:
| Particulars | Current Quarter | Previous year same quarter | Year Till date (Current year) | Year Till date (Previous year) |
| Revenue | ||||
| Revenue from operations | $1,00,000 | $60,000 | $2,00,000 | $1,20,000 |
| Less: Expenses | ||||
| Operating cost | $50,000 | $30,000 | $1,00,000 | $60,0000 |
| Salaries, wages and other staff cost | $5,000 | $3,000 | $10,000 | $6,000 |
| Depreciation and
amortizations |
$2,000 | $2,000 | $4,000 | $4,000 |
| Profit before tax | $43,000 | $25,000 | $86,000 | $50,000 |
| Tax Expenses | $5,000 | $3,000 | $10,000 | $6,000 |
| Profit/Loss for The Period | $38,000 | $22,000 | $76,000 | $44,000 |
Example #2 – Preparing Interim Balance Sheet
From the following figures of Vital Inc., prepare the interim Balance sheet as on 30/06/2019.
| Particulars | Current Quarter | Previous year ended |
| Equity Share capital | $20,000 | $15,000 |
| Reserves & Surplus | $40,000 | $20,000 |
| Long term debts | $20,000 | $15,000 |
| Current liabilities | $20,000 | $10,000 |
| Tangible Fixed Assets | $40,000 | $20,000 |
| Investments | $20,000 | $20,000 |
| Cash | $10,000 | $5,000 |
| Long-term loans and advances | $30,000 | $15,000 |
Solution:
Interim Balance Sheet of Ms. Vital Inc.
As on 30/06/2019
| Particulars | Current Interim Figures | At the End of the Previous FY |
| I. Equity and liabilities | ||
| Equity Share capital | $20,000 | $15,000 |
| Reserves & Surplus | $40,000 | $20,000 |
| Long term liabilities | $20,000 | $15,000 |
| Current Liabilities | $20,000 | $10,000 |
| TOTAL | $1,00,000 | $60,000 |
| II Assets | ||
| Tangible fixed assets | $40,000 | $20,000 |
| Non-Current Investments | $20,000 | $20,000 |
| Long-term loans and advances | $30,000 | $15,000 |
| Current Assets | $10,000 | $5,000 |
| Total | $1,00,000 | $60,000 |
Problems in Interim Reporting
- Since interim reporting is based on a shorter period, the relevance of results becomes less precise, leading to inaccurate decision-making. Estimates and judgments based on interim reports may not be accurate for decisions made regarding the company.
- There are issues related to inventory, like the determination of inventory quantity, adjustments of valuation, and valuation of inventories with interim reports making it invariably impractical to count and price inventory every quarter or every month.
- As the business operations are not uniform throughout the year, difficulties are created in matching costs and revenues. Some expenses incurred during a period may be uncertain for a given period of time when revenues have been reported. This causes a mismatch in sales, revenue, and expense ratios reported in interim reports.
- The number of disclosures required for annual reporting may not apply to interim reporting. Criteria for determining the information, treatment of prior period adjustments, earning per share, and extraordinary items also impose difficulties in interim reporting.
- It also restricts the quality of accounting measurements. Interim disclosures are also limited as compared to annual disclosures.
Need for Interim Reporting
Annual data becomes insufficient to evaluate developments in business enterprises’ increased scope and complexity. Making or revising earnings projections and calculating financial positions for investment decisions calls for interim reporting. The economic decisions of a company are made based on the information disclosed through financial reports throughout the year. The company and other stakeholders, like investors, creditors, government, etc., make economic decisions based on interim financial reports.
Why is Interim Reporting Important?
- The interim report represents a company’s financial position that consists of its complete set of financial statements as prepared for annual reporting.
- Its main purpose is to provide stakeholders of the company with necessary accounting information in due time to elaborate operational, funding, and investment decisions.
- Companies’ performance can be evaluated by investors with the help of interim reporting.
Advantages
Some of the advantages are:
- Interim reports offer a better periodic glance at the company to the shareholders.
- It helps keep the firm in the good books of investors by providing periodic information and establishing a better connection with the investors by helping them allocate investment.
- Error and fraud in financial statements can be easily detected and prevented early.
- A comprehensive internal control procedure is implemented with the help of interim reporting that helps make accounting policies robust.
- The interim dividend can be declared and provided to the company’s shareholders by reporting periodic financial statements, which helps shareholders and the company hold on to their investments.
- Interim reporting helps big conglomerates track their short-term initiates that align with a long-term strategy.
Disadvantages
Some of the disadvantages are:
- As the reporting period is shorter in preparing interim reports, chances of errors increase, leading to concerns of inaccurate information.
- Certain operating expenses are incurred in one period, and their benefits are earned in subsequent periods, such as advertising, maintenance cost, repairs, etc, which may sometimes distort the firm’s financial status.
- Inventory calculations in an interim period are time-consuming, repetitive, and error-prone. Determination of the quantity and valuation of the inventory leads to unnecessary adjustments in the financial statements.
- Interim reports emphasize short-term results that distort the picture for investors and companies as they might contain over/under-booked expenses and income.
Conclusion
Interim reporting can be done with limited information to avoid redundancy and reduced complexity. It becomes helpful for the company to assess major financial data like revenues, expenditures, income, losses, etc, periodically. It helps firms, investors, and stakeholders get a mature and better economic ecosystem. Companies need to prepare interim financial statements based on the applicable standards, ex IFRS, INDAS, GAAP, etc, and laws of the land.
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