What is an Interim Financial Statement?

Interim Financial Statements Meaning

Interim financial statements refer to financial reports that cover a period of less than one year.

 

Typically, interim financial statements are created quarterly, but they can also be created every six months, or even monthly.

 

Regular financial statements are normally prepared annually, as part of the company’s annual reporting, to provide an update on the business’s performance on a year-over-year basis.

 

The problem with this, is that events could take place during the year which could affect the perception of the company to investors and outsiders.

 

This is where interim financial statements are useful, as they can update the user of the interim statements to any material changes in the company in a timely matter, rather than allowing the news to break at the end of the financial year.

Interim Financial Statement Example

To illustrate when companies might issue interim financial statements, we can look at the examples below. These examples assume a company with an accounting year that ends on the 31st December each year:

 

  • For the three months ending 31st March
  • For the three months ending 30th June
  • For the three months ending 30th September
  • For the six months ending 30th June
  • For the nine months ending 30th September
interim financial statements timeline

Interim Financial Statements vs Annual Financial Statements

Interim financial statements are very similar to annual financial statements, but there are some key differences between the two types of report:

 

  • External audits are performed on annual financial statements, but aren’t required on interim financial statements.
  • Disclosures are not required in interim statements. A disclosure is essentially additional information which supplements a company’s financial statements. For example, this could be a detailed explanation for events that have substantially impacted the financial results
  • Inventory is often calculated differently on interim statements. This is because companies usually only physically count stock once a year due to the resource demands.

Why Do Businesses Create Interim Financial Statements?

Interim financial statements are useful to both internal and external stakeholders.

 

Internally, they can help to identify and uphold internal control procedures. They can also help management to monitor progress and performance, to ensure that the end of year goals are on track.

 

Externally, interim statements are useful to shareholders and analysts as they provide more accurate and up-to-date information.

 

For example, let’s imagine a company has just released their annual financial report and have announced plans to expand the business by building several new factories to increase production.

 

This news may be appealing to investors, who may then invest in the company. But then if after a couple of months, the business falls into financial trouble and cannot follow through with their plans, the investors wouldn’t find this out until the end of the year.

 

Interim financial statements therefore allow for more regular communication with stakeholders outside of the business.

What are the contents of an Interim Statement?

Interim financial statements generally include the same reports that you would find in annual financial statements:

 

  • Income statement
  • Balance sheet
  • Cash flow statement

The minimum content requirement is a set of condensed financial statements for the interim period and comparative prior period information.

 

It’s important to remind ourselves that there isn’t any difference between an interim balance sheet and a regular balance sheet. This is because the balance sheet shows the businesses assets and liabilities at that specific point in time.

 

The interim income statements and cash flow statements will just show the income and expenditure for the period specified. As mentioned previously, this can be quarterly, half yearly or even monthly.

interim financial statements example

Benefits of Interim Statements

There are many advantages to producing Interim financial statements:

 

  • They keep investors and other stakeholders updated on important financial results.
  • Regular communication with investors and potential investors can help to build trust and confidence in the company.
  • Dividends are often paid quarterly, so issuing interim financial statements can help in the declaration of the dividend.
  • An interim statement could help to identify any errors or material miscalculations before the annual statements are prepared. Consequently, remedial action can be taken to rectify and avoid these errors in the future.

Limitations of Interim Statements

There are also several disadvantages and shortcomings of producing interim financial statements:

 

  • For companies affected by seasonality, a smaller timeframe can give an incomplete picture of the overall business performance. For example, a company that manufacturers outdoor hot tubs might receive more orders, and therefore more revenue, in the summertime. So viewing their interim results over the Winter period would be misleading for the complete picture.
  • Interim financial statements do not have the same level of detail when it comes to the financial disclosures made in the annual statements.
  • Unlike Annual Financial reports, Interim Financial Reporting is usually unaudited and presented in an abbreviated format. Due to the unaudited nature of the reports, absolute verification of the numbers cannot be achieved.
  • Interim financial statements may understate or overstate any annual estimations and forecasts due to complete financial information being unavailable.

Are Interim Financial Statements Audited?

No, interim financial statements are not usually audited.

 

This is because an external audit is typically very time consuming, expensive and resource heavy, so it is just the annual financial statements that require an external audit.

IAS 34 Interim Financial Reporting (International Accounting Standard)

The accounting standard IAS 34 discloses the minimum content of an interim financial report and the principles for recognition and measurement in complete or condensed financial statements for an interim period.

 

To read the standard in full, please refer to the full text standard.