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Accounting Standard (AS) 25 Notes

Accounting Standard (AS) 25: Interim Financial Reporting

Introduction

Interim financial reporting is the reporting for periods of less than a year, generally for a period of 3 months. As per Clause 41 of listing agreement the companies are required to publish the financial results on a quarterly basis.

Objectives of AS 25

AS-25 prescribe minimum content of an interim financial report and principles for recognition and measurement in a complete or condensed financial statement for an interim period or specific dates in respect of asset, liability, income and expense.

There are certain typical problems not faced while preparing annual account as the reporting period is shortened, the effect of errors in estimation and allocation are magnified e.g.

(i) accrual of tax credits in different interim period, makes determination of tax expense often difficult, one period may reveal tax profit while the other interim period have tax losses;

(ii) benefit of expenses spread beyond interim period e.g. advertising expenses, major repair and maintenance expenses;

(iii) determination of approximate amount of provisions, e.g. warranties, pension, gratuity, maybe complex ‘and time consuming;

(iv) revenue may be seasonal or cyclical, hence concentration falls in certain interim periods;

(v) inter-company reconciliation, full stock-taking and valuation may be cumbersome and time consuming;

(vi) transaction based on Annual Targets e.g.: bonus or incentives would be difficult to estimate.

The standard itself does not categorize the enterprise or frequency of interim financial report and the time limit for presentation from the end of an interim period, but if it is required to prepare and present, it should comply with AS-25.

Instances for interim financial report

(i) quarterly report to the board of directors or bank

(ii) incase of merger and amalgamation

(iii) for IPO purpose

(iv) for consolidation of parent and subsidiary when year ends are different

(v) for declaring interim dividend’ Accounting for interim transaction:

(a) interim period is considered as integral part of annual accounting period e.g. annual operating expc!1ses are estimated and then allocated to the interim period based on estimated sales or other parameters and results of subsequent interim periods are adjusted for estimation errors (integral approach)

(b) each interim period is considered as discrete and separate accounting period like a full accounting period e.g. no estimation or allocation and operating expenses are recognized in the concerned interim period irrespective of benefit accruing to other interim period (discrete approach).

Form and contents of interim financial statement

(a) AS 25 doesn’t prohibit an enterprise from presenting a complete set of financial statements (e.g. balance sheet, profit & loss statement, cash flow statement notes to account and accounting policies, other statements and other explanatory’ materials as forming integral part of the financial statement).

(b) The recognition and measurement principles as stated in AS-25 also apply to complete set of financial statements for an interim period, full disclosure under this statement and other accounting standard will be required.

(c) Alternatively, the statement allows preparation and presentation ‘of interim financial report in a condensed form, containing as a minimum, a set of condensed financial statements, providing update on the latest annual financial statements (does not duplicate the information already reported)

Contents of a condensed Interim Financial Statements as a minimum

1. A statement that the same accounting policies are followed as in the most recent annual financial statements – for change, description of the nature and effect of the change.

Explanatory comment, about the seasonality of the interim operations the nature and amount of items affecting assets, liability, equity, net income or cash flows that are unusual because of their nature, size or incidence.

2. 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 amount reported in prior financial year – if the those changes have a material effect in the current interim period.

3. Issues, buy-back, repayment and restructuring of debt, equity and potential equity shares.

4. Dividends, aggregate per share (in absolute or percentage) separately for equity and other shares

5. If compliance required under AS-17, segment revenue, segment capital employed and segment result for Business or Geographical segments (whichever is primary for reporting).

6. Effect of changes in the composition of the enterprise during the interim period (e.g. amalgamation, acquisition or disposal of subsidiaries and long term investments, restructuring and discontinuing operation.

7. Material change in contingent liabilities since last annual B/S date.

The above selected explanatory notes should normally be reported on a financial year to date basis.

Period of Interim Financial Statement

Interim reports should include interim financial statements (condensed or complete) for periods as follows:

(a) Balance Sheet:

(1) As at the end of current interim period

(2) As at the end of the immediately preceding financial year

(b) Statement of Profit and Loss:

(1) For the current period

(2) Cumulative for the current financial year to date

(3) Comparative for the comparable interim period (current arid year to date

(c) Cash flow Statement:

(1) Current financial year to date

(2) Comparative for the comparable year to date for immediately preceding financial year.

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