Understanding IND AS 34 & IAS-34 for Interim Financial Reporting

Introduction:

The world of finance and accounting is a complex one, filled with standards and regulations that ensure transparency and accuracy in reporting. One such set of standards deals with Interim Financial Reporting, which provides guidelines for reporting financial information during the course of a financial year. In this article, we will delve into the nuances of IND AS 34 and IAS-34, which pertain to Interim Financial Reporting, incorporating changes as per the Companies (Indian Accounting Standards) Amendment Rules 2023.

Detailed Analysis:

1. The Accounting Standards for Interim Financial Reporting:Interim Financial Reporting is governed by accounting standards that help companies provide financial information to stakeholders during the year. Two significant standards related to Interim Financial Reporting are:A. Ind AS -34: Ind AS-34 is the Indian Accounting Standard that specifically deals with Interim Financial Reporting. It sets out the minimum content of an interim financial report and provides principles for recognition and measurement in complete or condensed financial statements for interim periods.B. IAS-34, IFRIC-10: The International Accounting Standards (IAS) also includes IAS-34, which is equivalent to Ind AS-34, and provides guidelines for interim financial reporting. Additionally, IFRIC-10 addresses the issue of Interim Financial Reporting and Impairment.
2. Differences between IND AS-34 and IAS-34:While both Ind AS-34 and IAS-34 serve the same purpose, there are some differences between them:
   • Approach for Preparing Statement of Profit or Loss: Ind AS-34 allows only a single statement approach for preparing the statement of profit or loss, while IAS-34 provides the option to follow either a single statement approach or a two-statement approach.
   • Terms Used: Ind AS-34 uses the terms “Statement of Profit and Loss” and “Balance Sheet,” whereas IAS-34 uses “Statement of Comprehensive Income” and “Statement of Financial Position.”
   • Regulation Governance: Ind AS-34 envisages that the requirement to present an interim financial report should be governed by the relevant Indian laws or regulations. In contrast, IAS-34 encourages publicly traded entities to provide interim financial reports conforming to the recognition, measurement, and disclosure principles set out in the standard.

   Apart from these differences, there are no major distinctions between Ind AS-34 and IAS-34.

3. Objective:The primary objectives of both Ind AS-34 and IAS-34 are to:
   • Prescribe the minimum content of an interim financial report.
   • Provide principles for recognition and measurement in complete or condensed financial statements for interim periods.
4. Scope:
   • It is not mandatory for entities to follow these standards for interim financial reporting. However, government and regulatory bodies often require entities with publicly traded debt or equity securities to publish interim financial reports.
   • If an entity’s interim financial report is described as complying with Ind AS, it must comply with all the requirements of this standard.
5. Definitions:
   • Interim Period: It is a financial reporting period shorter than a full financial year.
   • Interim Financial Report: It means a financial report containing either a complete set of financial statements or a set of condensed financial statements for an interim period.
6. Contents of an Interim Financial Report: A. When a complete set is published, the entity must comply with Ind AS 1.
   • A complete set of financial statements includes: a. A balance sheet as at the end of the period. b. A statement of profit and loss for the period. c. A statement of changes in equity for the period. d. A statement of cash flows for the period. e. Notes comprising significant accounting policies and other explanatory information. f. A balance sheet as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements.
   • The recognition and measurement guidance under Ind AS 34 applies.
   • Disclosure required by the standard as well as those required by other Ind ASs.

   B. When a condensed set is published, the minimum components include:

   • A condensed balance sheet.
   • A condensed statement of profit and loss.
   • A condensed statement of changes in equity.
   • A condensed statement of cash flows.
   • Selected explanatory notes.

   If an entity publishes condensed financial statements in its interim financial report, those statements must include at least the headings and subtotals included in its most recent annual financial statements, along with selected explanatory notes.

7. Significant Events and Transactions:
   • An entity must include in its interim financial report an explanation of events and transactions significant to an understanding of the changes in the financial position and performance of the entity since the end of the last annual reporting period.
   • Some of the significant events and transactions for which disclosures are required include write-down of inventories, recognition of a loss from impairment of assets, acquisitions, litigation settlements, related party transactions, and changes in contingent liabilities or contingent assets, among others.
8. Periods for which Interim Financial Statements Are Required: Interim reports shall include interim financial statements (condensed or complete) for periods such as:
   • A 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.
   • Statements of changes in equity cumulatively for the current financial year to date.
   • Statements of cash flows cumulatively for the current financial year to date.
9. Materiality: Materiality plays a crucial role in determining how to recognize, measure, classify, or disclose an item for interim financial reporting purposes. Materiality is assessed concerning the interim period financial data. Both Ind AS 1 and Ind AS 8 require separate disclosure of material items, including discontinued operations, changes in accounting estimates, errors, and changes in accounting policies. However, these standards do not provide quantified guidance on materiality.
10. Disclosure in Annual Financial Statements: If an estimate of an amount reported in an interim period is changed significantly during the final interim period of the financial year, the nature and amount of that change in estimate must be disclosed in a note to the annual financial statements for that financial year.
11. Recognition and Measurement:
    • Interim financial statements should apply the same accounting policies as annual financial statements, except for changes made after the most recent annual financial statements.
    • Costs that are incurred unevenly during the entity’s financial year can be anticipated or deferred for interim reporting purposes if appropriate.
    • Revenues received seasonally, cyclically, or occasionally within a financial year should not be anticipated or deferred as of an interim date.
12. Restatement of Previously Reported Interim Periods: If there is a change in accounting policy within the current financial year, the effect of the change must be applied retrospectively.
13. Companies (Indian Accounting Standards) Amendment Rules 2023:The recent changes in the Companies (Indian Accounting Standards) Amendment Rules 2023 include modifications in the language used in Ind AS-34. The rules clarify the process of recognition and highlight the importance of assets, liabilities, income, and expenses as fundamental to recognition. These changes are effective from specific dates, as mentioned in the amendment rules.

Conclusion:

IND AS-34 and IAS-34 are crucial in providing guidelines for Interim Financial Reporting, ensuring that companies present financial information accurately and transparently throughout the financial year. The recent amendments further emphasize the importance of recognizing assets, liabilities, income, and expenses. By adhering to these standards and understanding the differences between them, companies can meet their reporting requirements and maintain financial integrity. It’s essential for financial professionals, accountants, and companies to stay updated with the latest standards and amendments for compliance and informed decision-making.

(Republished with Amendments)