IAS 34: Breathing life into interim financial reporting
IAS 34 Interim financial statements is a concise standard, comprising of close to 60 paragraphs. It is often not given much attention in comparison to other standards, even though it is a relatively easy standard to read and understand.
IAS 34 Interim financial statements is a concise standard, comprising of close to 60 paragraphs. It is often not given much attention in comparison to other standards, even though it is a relatively easy standard to read and understand.
The objective of IAS 34 is to ensure that companies publish relevant financial information at interim dates, thereby assisting stakeholders in making informed decisions. Often, companies perform a roll-forward exercise but fail to provide timely and reliable information to their readers. Imagine a new episode of your favourite series where only the background changes, leaving the dialogue untouched—boring and unhelpful, right? You might watch it just to show support but will be bored to the core.
IAS 34 does not dictate which companies should prepare interim or the frequency of this reporting, but it is important that if the company makes an explicit statement that it is complying with IAS 34, then it must company with all the requirements of the standard. No one certainly wants a half-baked cake.
So, what is the big deal?
Under IAS 34 you can choose to present condensed or complete financial statements. And how to prepare the condensed ones – the guidance is in the standard. Less is sometimes more and in IAS 34, it is quite important. In Finland, the interim report typically includes the full primary financial statements but only selected condensed notes, which allows for comparison with the annual financial statements. If you are stating that you report a complete set of financial statements, then you need to comply with IAS1 Presentation of Financial Statements. A key consideration that needs to be taken into consideration here is that we are expecting a new standard on the presentation of financial statements. The new kid on the block will be IFRS 18, and this standard is effective from January 1, 2027.
So why does it matter? As IFRS 18 needs to be applied on the first published interim period of 2027, you will need a reconciliation on the immediately preceding and cumulative current periods. This means that you will need to start considering IFRS 18 sooner rather than later, but refer to the Appendix C of IFRS 18 as well as to our in brief: IFRS 18 is here: redefining financial performance reporting for more information.
Significant events and transactions
IAS 34 requires that you include an explanation of events and transactions that are significant to your entity. This is especially important for the users to understand the changes since the last annual reporting period. This also points out the fact that you cannot just copy and paste from the previous period and expect the interim report to comply with IAS 34. We saw a lot of movement within the last 8 months with regards to, for example, the US Tariffs. These tariffs could have an impact on, for instance, the value of your inventory and this is something that the users would find useful to understand. Please refer to our brief on tariffs as it might also be applicable on interim reports: Tariffs: the price tag of global trade on financial reporting.
Other notable transactions could be the recognition of an impairment loss from the financial assets, property, plant and equipment, intangible assets, or other assets, and the reversal of such impairment losses (IAS 34 Para. 15B). What about significant financing transactions or restructuring events? Did you acquire a business or reward your people through a new incentive plan? The standard does not provide an exhaustive list, so management needs to take a step back to ensure that they are reporting useful and reliable information to the users relevant in the interim period.
Year-to-date principle
IAS 34 has a year-to-date principle that incorporates the idea that you only report changes from the last reported annual financial statements. It gives you a glimpse of what has happened since the last annual report concerning financial performance or financial position of the company. There are a few things to keep in mind when it comes to the year-to-date considerations where changes in estimates might be needed to reflect the information known in the interim period.
IAS 34 has a few very useful examples that should be reviewed by IAS 34 preparers. These examples are not located in the main standard, but in the appendix “Illustrative Examples”, which accompanies the standard and provides application guidance. Even though it is not authoritative, it gives a lot of helpful guidance for the application of the standard. This is a good reminder that appendices – including Basis for Conclusions – sections of the standards are often extremely useful, even though they might be overlooked just like the closing credits in a movie. . The examples in the IAS 34 standard include, inter alia contingent lease payments, measuring interim income tax expenses, interim period manufacturing cost variances, impairment of assets under IAS 36 and year-end bonuses.
What else to consider
Interim reports are no exception: as with annual reports, materiality plays a significant part in what is presented to users. One big consideration that needs to be considered is the fact that management will need to consider the materiality in relation to the interim period financial data and not the annual financial data. Once again, IASB has issued an IFRS Practice Statement on Making Materiality Judgements that also has a section on interim reports. This can benefit preparers in assessing what information is material.
This year we have seen numerous strikes in several sectors, which have had a direct impact on some of the preparers’ operations and revenues. This is the type of information that management should be reporting on in the interim reports. Other events include the drop of the Euribor, restructurings taking place and even the fact that this summer Finland experienced more days when the temperature reached above 30 degrees than ever before in history. These are all factors that should be considered when making an evaluation on what to report in the interim report.
In conclusion, IAS 34 might not be the biggest standard in terms of number of paragraphs, but it might have a big impact if applied correctly and it plays a pivotal role in getting the right information to the stakeholders at the right time.
We look forward to seeing the interim reports the autumn will bring!
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