IAS 34 - Interim Reporting

1. IAS 34 - Interim Reporting

2. Executive summary • Interim financial reporting under IFRS and US GAAP are also very similar. • Under IFRS, each interim period is viewed as a discrete reporting period and costs that do not meet the definition of an asset may not be deferred at the end of a period. • Under US GAAP, each interim period is viewed as an integral part of an annual period and certain costs that may benefit other periods may be allocated to those periods.

3. Progress on convergence Will be included in Phase C of the Financial Statement Presentation Project.

4. Interim reportingGeneral US GAAP IFRS Entities are required to use the same accounting policies that were in effect in the prior year, subject to adoption of new policies that are disclosed. Similar A complete set of financial statements or a condensed set of financial statements is allowed. Similar

5. Interim reportingGeneral US GAAP IFRS Does not mandate which entities are required to present interim financial information, that is the purview of local securities regulators. For example, US public companies must follow SEC Regulation S-X for the purpose of preparing interim financial statements. Similar If reporting condensed financial statements, a condensed balance sheet, condensed income statement, condensed cash flows statement and certain explanatory notes are required. Similar

6. Interim reportingGeneral US GAAP • If reporting condensed financial statements, it is not required that a condensed statement of changes in equity be presented. • If reporting condensed financial statements, a condensed statement of comprehensive income is not required. IFRS • A condensed statement of changes in equity is required if reporting condensed financial statements. • A condensed statement of comprehensive income is required.

7. Interim reportingIntegral versus discrete principles US GAAP • Views each interim period as an integral part of the annual period. IFRS • With some exceptions, views each interim period as a discrete period.

8. Interim reportingSpecial reporting issues US GAAP IFRS Basic and diluted earnings per share are presented on the face of the income statement. Similar Income tax expense for an interim period is based on an estimation of the annualized effective tax rate. This is more consistent with the integral approach. Similar

9. Interim reportingSpecial reporting issues US GAAP • Since each interim period is viewed as an integral part of an annual period, certain costs that benefit more than one interim period may be allocated among those periods, resulting in deferral or accrual of certain costs. For example, certain costs such as bad debt expense, inventory shrinkage and executive compensation are not known until year-end. • Under the integral approach, these costs would be allocated across all interim periods. IFRS • Under the discrete approach, the entire expense related to these items would be included in one interim period.

10. Example 2 Interim Company Inc. (ICI) generally incurs annual executive compensation expense of $100,000, annual inventory shrinkage of $20,000 and annual bad debt expense of $10,000. These numbers are not known with certainty until the fourth quarter. ICI also typically incurs cost of goods sold of approximately $800,000. Cost allocations across interim periods example • During what interim periods should ICI report these expenses under US GAAP and IFRS?

11. Example 2 solution: US GAAP:Cost of goods sold should be reported as incurred (i.e., matched to sales revenue). The other expenses should be allocated across all four interim quarters. IFRS:All expenses should be reported as incurred. There should not be any explicit allocation. Cost allocations across interim periods example