The objective of this Statement
is to prescribe the minimum content of an interim financial
report and to prescribe the principles for recognition and
measurement in a complete or condensed financial statements
for an interim period. Timely and reliable interim financial
reporting improves the ability of investors, creditors,
and others to understand an enterprise’s capacity to generate
earnings and cash flows, its financial condition and liquidity.
| 1. |
This
Statement does not mandate which enterprises should
be required to present interim financial reports,
how frequently, or how soon after the end of an interim
period. If an enterprise is required or elects to
prepare and present an interim financial report, it
should comply with this Statement.
|
| 2. |
A statute
governing an enterprise or a regulator may require
an enterprise to prepare and present certain information
at an interim date which may be different in form
and/or content as required by this Statement. In such
a case, the recognition and measurement principles
as laid down in this Statement are applied in respect
of such information, unless otherwise specified in
the statute or by the regulator.
|
| 3. |
The requirements
related to cash flow statement, complete or condensed,
contained in this Statement are applicable where an
enterprise prepares and presents a cash flow statement
for the purpose of its annual financial report.
|
Definitions
|
| 4. |
The
following terms are used in this Statement with the
meanings specified :
Interim period is a financial reporting period
shorter than a full financial year.
Interim financial report means a financial
report containing either a complete set of financial
statements or a set of condensed financial statements
(as described in this Statement) for an interim period.
|
| 5. |
During
the first year of operations of an enterprise, its annual
financial reporting period may be shorter than a financial
year. In such a case, that shorter period is not considered
as an interim period.
|
Content of an
Interim Financial Report
|
| 6. |
A complete set of financial
statements normally includes:
- balance sheet;
- statement of profit and loss;
- cash flow statement; and
-
notes including those relating
to accounting policies and other statements and
explanatory material that are an integral part of
the financial statements.
|
| 7. |
In the interest
of timeliness and cost considerations and to avoid
repetition of information previously reported, an
enterprise may be required to or may elect to present
less information at interim dates as compared with
its annual financial statements. The benefit of timeliness
of presentation may be partially offset by a reduction
in detail in the information provided. Therefore,
this Statement requires preparation and presentation
of an interim financial report containing, as a minimum,
a set of condensed financial statements. The interim
financial report containing condensed financial statements
is intended to provide an update on the latest annual
financial statements. Accordingly, it focuses on new
activities, events, and circumstances and does not
duplicate information previously reported.
|
| 8. |
This Statement
does not prohibit or discourage an enterprise from
presenting a complete set of financial statements
in its interim financial report, rather than a set
of condensed financial statements. This Statement
also does not prohibit or discourage an enterprise
from including, in condensed interim financial statements,
more than the minimum line items or selected explanatory
notes as set out in this Statement. The recognition
and measurement principles set out in this Statement
apply also to complete financial statements for an
interim period, and such statements would include
all disclosures required by this Statement (particularly
the selected disclosures in paragraph 16) as well
as those required by other Accounting Standards.
|
Minimum Components
of an Interim Financial Report
|
| 9. |
An interim financial
report should include, at a minimum, the following components:
- condensed balance sheet;
- condensed statement of profit and
loss;
- condensed cash flow statement; and
- selected explanatory notes.
|
Form and Content
of Interim Financial Statements
|
| 10. |
If
an enterprise prepares and presents a complete set
of financial statements in its interim financial report,
the form and content of those statements should conform
to the requirements as applicable to annual complete
set of financial statements.
|
| 11. |
If
an enterprise prepares and presents a set of condensed
financial statements in its interim financial report,
those condensed statements should include, at a minimum,
each of the headings and sub-headings that were included
in its most recent annual financial statements and
the selected explanatory notes as required by this
Statement. Additional line items or notes should be
included if their omission would make the condensed
interim financial statements misleading.
|
| 12. |
If
an enterprise presents basic and diluted earnings
per share in its annual financial statements in accordance
with Accounting Standard (AS) 20, Earnings Per Share,
basic and diluted earnings per share should be presented
in accordance with AS 20 on the face of the statement
of profit and loss, complete or condensed, for an
interim period.
|
| 13. |
If an enterprise’s
annual financial report included the consolidated
financial statements in addition to the parent’s separate
financial statements, the interim financial report
includes both the consolidated financial statements
and separate financial statements, complete or condensed.
|
| 14. |
Appendix 1 provides illustrative
formats of condensed financial statements.
|
Selected Explanatory
Notes
|
| 15. |
A user of
an enterprise’s interim financial report will ordinarily
have access to the most recent annual financial report
of that enterprise. It is, therefore, not necessary
for the notes to an interim financial report to provide
relatively insignificant updates to the information
that was already reported in the notes in the most
recent annual financial report. At an interim date,
an explanation of events and transactions that are
significant to an understanding of the changes in
financial position and performance of the enterprise
since the last annual reporting date is more useful.
|
| 16. |
An enterprise
should include the following information, as a minimum,
in the notes to its interim financial statements,
if material and if not disclosed elsewhere in the
interim financial report:
-
a statement that the
same accounting policies are followed in the interim
financial statements as those followed in the
most recent annual financial statements or, if
those policies have been changed, a description
of the nature and effect of the change;
-
explanatory comments
about the seasonality of interim operations;
-
the nature and amount
of items affecting assets, liabilities, equity,
net income, or cash flows that are unusual because
of their nature, size, or incidence (see paragraphs
12 to 14 of Accounting Standard (AS) 5, Net Profit
or Loss for the Period, Prior Period Items and
Changes in Accounting Policies);
-
the nature and amount
of changes in estimates of amounts reported in
prior interim periods of the current financial
year or changes in estimates of amounts reported
in prior financial years, if those changes have
a material effect in the current interim period;
-
issuances, buy-backs,
repayments and restructuring of debt, equity and
potential equity shares;
-
dividends, aggregate
or per share (in absolute or percentage terms),
separately for equity shares and other shares;
-
segment revenue, segment
capital employed (segment assets minus segment
liabilities) and segment result for business segments
or geographical segments, whichever is the enterprise’s
primary basis of segment reporting (disclosure
of segment information is required in an enterprise’s
interim financial report only if the enterprise
is required, in terms of AS 17, Segment Reporting,
to disclose segment information in its annual
financial statements);
-
the effect of changes
in the composition of the enterprise during the
interim period, such as amalgamations, acquisition
or disposal of subsidiaries and long-term investments,
restructurings, and discontinuing operations;
and
- material changes in contingent liabilities
since the last annual balance sheet date.
The above information
should normally be reported on a financial year -
to - date basis. However, the enterprise should also
disclose any events or transactions that are material
to an understanding of the current interim period.
|
| 17. |
Other Accounting
Standards specify disclosures that should be made
in financial statements. In that context, financial
statements mean complete set of financial statements
normally included in an annual financial report and
sometimes included in other reports. The disclosures
required by those other Accounting Standards are not
required if an enterprise’s interim financial report
includes only condensed financial statements and selected
explanatory notes rather than a complete set of financial
statements.
|
Periods for which
Interim Financial Statements are required to be presented
|
| 18. |
Interim
reports should include interim financial statements
(condensed or complete) for periods as follows:
-
balance sheet
as of the end of the current interim period and
a comparative balance sheet as of the end of the
immediately preceding financial year;
-
statements of
profit and loss for the current interim period
and cumulatively for the current financial year
to date, with comparative statements of profit
and loss for the comparable interim periods (current
and year-to-date) of the immediately preceding
financial year;
-
cash flow statement
cumulatively for the current financial year to
date, with a comparative statement for the comparable
year-to-date period of the immediately preceding
financial year.
|
| 19. |
For an enterprise
whose business is highly seasonal, financial information
for the twelve months ending on the interim reporting
date and comparative information for the prior twelve-month
period may be useful. Accordingly, enterprises whose
business is highly seasonal are encouraged to consider
reporting such information in addition to the information
called for in the preceding paragraph.
|
| 20. |
Appendix
2 illustrates the periods required to be presented
by an enterprise that reports half-yearly and an enterprise
that reports quarterly.
|
| 21. |
In
deciding how to recognise, measure, classify, or disclose
an item for interim financial reporting purposes,
materiality should be assessed in relation to the
interim period financial data. In making assessments
of materiality, it should be recognised that interim
measurements may rely on estimates to a greater extent
than measurements of annual financial data.
|
| 22. |
The Preface
to the Statements of Accounting Standards states that
“The Accounting Standards are intended to apply only
to items which are material.” The Framework for the
Preparation and Presentation of Financial Statements,
issued by the Institute of Chartered Accountants of
India, states that “information is material if its
misstatement (i.e., omission or erroneous statement)
could influence the economic decisions of users taken
on the basis of the financial information.”
|
| 23. |
Judgement
is always required in assessing materiality for financial
reporting purposes. For reasons of understandability
of the interim figures, materiality for making recognition
and disclosure decision is assessed in relation to
the interim period financial data. Thus, for example,
unusual or extraordinary items, changes in accounting
policies or estimates, and prior period items are
recognised and disclosed based on materiality in relation
to interim period data. The overriding objective is
to ensure that an interim financial report includes
all information that is relevant to understanding
an enterprise’s financial position and performance
during the interim period.
|
Disclosure in
Annual Financial Statements
|
| 24. |
An
enterprise may not prepare and present a separate
financial report for the final interim period because
the annual financial statements are presented. In
such a case, paragraph 25 requires certain disclosures
to be made in the annual financial statements for
that financial year.
|
| 25. |
If
an estimate of an amount reported in an interim period
is changed significantly during the final interim
period of the financial year but a separate financial
report is not prepared and presented for that final
interim period, the nature and amount of that change
in estimate should be disclosed in a note to the annual
financial statements for that financial year.
|
| 26. |
Accounting
Standard (AS) 5, Net Profit or Loss for the Period,
Prior Period Items and Changes in Accounting Policies,
requires disclosure, in financial statements, of the
nature and (if practicable) the amount of a change
in an accounting estimate which has a material effect
in the current period, or which is expected to have
a material effect in subsequent periods. Paragraph
16(d) of this Statement requires similar disclosure
in an interim financial report. Examples include changes
in estimate in the final interim period relating to
inventory write-downs, restructurings, or impairment
losses that were reported in an earlier interim period
of the financial year. The disclosure required by
the preceding paragraph is consistent with AS 5 requirements
and is intended to be restricted in scope so as to
relate only to the change in estimates. An enterprise
is not required to include additional interim period
financial information in its annual financial statements.
|
Recognition
and Measurement
Same Accounting Policies as Annual
|
| 27. |
An
enterprise should apply the same accounting policies
in its interim financial statements as are applied
in its annual financial statements, except for accounting
policy changes made after the date of the most recent
annual financial statements that are to be reflected
in the next annual financial statements. However,
the frequency of an enterprise’s reporting (annual,
half-yearly, or quarterly) should not affect the measurement
of its annual results. To achieve that objective,
measurements for interim reporting purposes should
be made on a year-to-date basis.
|
| 28. |
Requiring
that an enterprise apply the same accounting policies
in its interim financial statements as in its annual
financial statements may seem to suggest that interim
period measurements are made as if each interim period
stands alone as an independent reporting period. However,
by providing that the frequency of an enterprise’s
reporting should not affect the measurement of its
annual results, paragraph 27 acknowledges that an
interim period is a part of a financial year. Year-to-date
measurements may involve changes in estimates of amounts
reported in prior interim periods of the current financial
year. But the principles for recognising assets, liabilities,
income, and expenses for interim periods are the same
as in annual financial statements.
|
| 29. |
To illustrate:
-
the principles for
recognising and measuring losses from inventory
write-downs, restructurings, or impairments in
an interim period are the same as those that an
enterprise would follow if it prepared only annual
financial statements. However, if such items are
recognised and measured in one interim period
and the estimate changes in a subsequent interim
period of that financial year, the original estimate
is changed in the subsequent interim period either
by accrual of an additional amount of loss or
by reversal of the previously recognised amount;
-
a cost that does not
meet the definition of an asset at the end of
an interim period is not deferred on the balance
sheet date either to await future information
as to whether it has met the definition of an
asset or to smooth earnings over interim periods
within a financial year; and
-
income tax expense
is recognised in each interim period based on
the best estimate of the weighted average annual
effective income tax rate expected for the full
financial year. Amounts accrued for income tax
expense in one interim period may have to be adjusted
in a subsequent interim period of that financial
year if the estimate of the annual effective income
tax rate changes.
|
| 30. |
Under the
Framework for the Preparation and Presentation of
Financial Statements, recognition is the “process
of incorporating in the balance sheet or statement
of profit and loss an item that meets the definition
of an element and satisfies the criteria for recognition”.
The definitions of assets, liabilities, income, and
expenses are fundamental to recognition, both at annual
and interim financial reporting dates.
|
| 31. |
For assets,
the same tests of future economic benefits apply at
interim dates as they apply at the end of an enterprise’s
financial year. Costs that, by their nature, would
not qualify as assets at financial year end would
not qualify at interim dates as well. Similarly, a
liability at an interim reporting date must represent
an existing obligation at that date, just as it must
at an annual reporting date.
|
| 32. |
Income is
recognised in the statement of profit and loss when
an increase in future economic benefits related to
an increase in an asset or a decrease of a liability
has arisen that can be measured reliably. Expenses
are recognised in the statement of profit and loss
when a decrease in future economic benefits related
to a decrease in an asset or an increase of a liability
has arisen that can be measured reliably. The recognition
of items in the balance sheet which do not meet the
definition of assets or liabilities is not allowed.
|
| 33. |
In measuring
assets, liabilities, income, expenses, and cash flows
reported in its financial statements, an enterprise
that reports only annually is able to take into account
information that becomes available throughout the
financial year. Its measurements are, in effect, on
a year-to-date basis.
|
| 34. |
An enterprise
that reports half-yearly, uses information available
by mid-year or shortly thereafter in making the measurements
in its financial statements for the first six-month
period and information available by year-end or shortly
thereafter for the twelve-month period. The twelve-month
measurements will reflect any changes in estimates
of amounts reported for the first six-month period.
The amounts reported in the interim financial report
for the first six-month period are not retrospectively
adjusted. Paragraphs 16(d) and 25 require, however,
that the nature and amount of any significant changes
in estimates be disclosed.
|
| 35. |
An enterprise
that reports more frequently than half-yearly, measures
income and expenses on a year-to-date basis for each
interim period using information available when each
set of financial statements is being prepared. Amounts
of income and expenses reported in the current interim
period will reflect any changes in estimates of amounts
reported in prior interim periods of the financial
year. The amounts reported in prior interim periods
are not retrospectively adjusted. Paragraphs 16(d)
and 25 require, however, that the nature and amount
of any significant changes in estimates be disclosed.
|
Revenues Received
Seasonally or Occasionally
|
| 36. |
Revenues
that are received seasonally or occasionally within
a financial year should not be anticipated or deferred
as of an interim date if anticipation or deferral
would not be appropriate at the end of the enterprise’s
financial year.
|
| 37. |
Examples
include dividend revenue, royalties, and government
grants. Additionally, some enterprises consistently
earn more revenues in certain interim periods of a
financial year than in other interim periods, for
example, seasonal revenues of retailers. Such revenues
are recognised when they occur.
|
Costs Incurred
Unevenly During the Financial Year
|
| 38. |
Costs
that are incurred unevenly during an enterprise’s
financial year should be anticipated or deferred for
interim reporting purposes if, and only if, it is
also appropriate to anticipate or defer that type
of cost at the end of the financial year.
|
Applying the
Recognition and Measurement principles
|
| 39. |
Appendix
3 provides examples of applying the general recognition
and measurement principles set out in paragraphs 27
to 38.
|
Use of Estimates
|
| 40. |
The
measurement procedures to be followed in an interim
financial report should be designed to ensure that the
resulting information is reliable and that all material
financial information that is relevant to an understanding
of the financial position or performance of the enterprise
is appropriately disclosed. While measurements in both
annual and interim financial reports are often based
on reasonable estimates, the preparation of interim
financial reports generally will require a greater use
of estimation methods than annual financial reports.
|
| 41. |
Appendix 4 provides examples
of the use of estimates in interim periods.
|
Restatement of
Previously Reported Interim Periods
|
| 42. |
A
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.
|
| 43. |
One objective
of the preceding principle is to ensure that a single
accounting policy is applied to a particular class
of transactions throughout an entire financial year.
The effect of the principle in paragraph 42 is to
require that within the current financial year any
change in accounting policy be applied retrospectively
to the beginning of the financial year.
|
Transitional
Provision
|
| 44. |
On the first
occasion that an interim financial report is presented
in accordance with this Statement, the following need
not be presented in respect of all the interim periods
of the current financial year:
-
comparative statements
of profit and loss for the comparable interim
periods (current and year-to-date) of the immediately
preceding financial year; and
-
comparative cash flow
statement for the comparable year-to-date period
of the immediately preceding financial year.
|
Appendix 1
|
Illustrative
Format of Condensed Financial Statements
|
| This
Appendix, which is illustrative and does not form
part of the Accounting Standard, provides illustrative
format of condensed financial statements. The purpose
of the appendix is to illustrate the application of
the Accounting Standard to assist in clarifying its
meaning.
Paragraph 11 of the Accounting Standard provides that
if an enterprise prepares and presents a set of condensed
financial statements in its interim financial report,
those condensed statements should include, at a minimum,
each of the headings and sub-headings that were included
in its most recent annual financial statements and
the selected explanatory notes as required by the
Standard. Additional line items or notes should be
included if their omission would make the condensed
interim financial statements misleading.
The purpose of the following illustrative format is
primarily to illustrate the requirements of paragraph
11 of the Standard. It may be noted that these illustrative
formats are subject to the requirements laid down
in the Standard including those of paragraph 11.
|
| Illustrative
Format of Condensed Financial Statements for an enterprise
other than a bank |
| (A)
Condensed Balance Sheet |
