CH. 18 IAS34 Interim Reporting & Management Commentary

Question 1

Define Interim Reporting and the requirements of IAS34?

Answer 1

IAS 34 Interim Financial Reporting
Interim financial reports are prepared for a period shorter than a full financial year. Entities may be required to prepare interim financial reports under local law or listing regulations.

IAS 34 does not require the preparation of interim reports BUT sets out the principles that should be followed if they are prepared and specifies their minimum content.

Question 2

What are the minimum components of an Interim financial report?

Answer 2

• A condensed statement of financial position;
• A condensed statement of profit or loss and other comprehensive income;
• A condensed statement of cash flows;
• A condensed statement of changes in equity; and
• Selected explanatory notes.

•  basic and diluted EPS should be presented on the face of interim statements of profit or loss and other comprehensive income for those entities within the scope of IAS 33 Earnings per Share.

Presentation Period and Comparatives

Current Year Figures should be shown Year to date & Corresponding period of the preceding financial year.

P/L and SFP figures for the current interim and previous year of the same interim period should be shown as well.

Accounting policies

The same accounting policies should be applied in an entity’s interim financial
statements as are applied in its annual financial statements.

Question 3

Define Management Commentary, its purpose and the principles in preparing management commentary?

Answer 3

Management commentary: This is a narrative report that relates to financial statements that have been prepared in accordance with IFRSs.

IFRS Practice Statement 1 Management Commentary is a non-binding guidance document rather than a specific IFRS. aka- It is not mandatory for entities to produce a management commentary, it was designed for a publicly-traded company and have left it to regulators to decide on what should be disclosed.

Purpose:-

• Management commentary provides users with historical explanations and more context to better understand the financial position, financial performance and cash flows of an entity.
• It also provides commentary on an entity’s prospects and other information not presented in the financial statements.
• Also serves as a basis for understanding management objectives and their strategies for achieving those objectives.

Principles for the preparation of management commentary

• (a) To provide management’s view of the entity’s performance, position and progress;
  
  • and
• (b) To supplement and complement the information presented in the financial statements

In aligning with these principles, management commentary should include:

• (a) Forward-looking information (including prospective results);
  
  • and
• (b) Information that possesses the qualitative characteristics described in the revised Conceptual Framework for Financial Reporting.

Question 4

What information is required/essential to be included in the management commentary?

Answer 4

The particular focus of management commentary will depend on the facts and circumstances of the entity.

However, Practice Statement 1 requires a management commentary to include information that is essential to an understanding of :

• (A) The nature of the business
• (B) Management’s objectives and its strategies for meeting those objectives
• (C) The entity’s most significant resources, risks and relationships
• (D) The results of operations and prospects
• (E) The critical performance measures and indicators that management uses to evaluate the entity’s performance against stated objectives
• (F) Entities are encouraged to present nonfinancial performance measures because these are typically absent from traditional financial reporting.

Management commentary should not be generic. This additional clutter makes it harder for investors to locate relevant information within the report.