Interim Financial Reporting

Question 1

Interim Reporting - What is Interim Financial Reporting?

Answer 1

• It is Periodic Financial Reporting (Arabic, Marhaly).
• Not Required by either IFRS or US GAAP, but guidance is provided for this type of reporting, as it is mostly used for Quarterly Reporting.

Question 2

Interim Reporting - Which set of rules are adopted for reporting Interim Financial Statements?

Answer 2

Generally Accepted Accounting Principles that were used for the most recent annual report must be applied on interim statements.

Question 3

Interim Reporting - What is Income Tax Provision, and what rate do we use to calculate it for the interim period?

Answer 3

Income Tax Provision is an estimated tax expense, it is referred as a provision and not an expense because it serves more like a reserve till the actual expense could be accurately calculated.

The rate we use to calculate tax provision for the interim period is the BEST ESTIMATE of the annual effective tax rate applicable for the full tax year, as seen at that specific point in time.

Question 4

Interim Reporting - What is the proper treatment for each of the “Permanent Inventory Losses”, and “Temporary Decline in Inventory” when reporting in an interim period?

Answer 4

• When Inventory Permanent Losses occur (by applying the lower of cost or market) , the loss should be immediately recognized, it is reported as part of the interim period. (Hint - Upward valuation of inventory is not recognized because inventory is always valued at LCM)
• When an inventory loss is thought to be permanent , but it eventually reversed at a future period, the reversed amount should be recognized as a GAIN, but not to exceed the previously recognized loss.
• When temporary decline in inventory is expected to be reversed before the end of the year, it must NOT be recognized till the end of the year.

Question 5

Interim Reporting - How would you treat expenses and costs that effect more than one interim period ?

Answer 5

Expenses and costs which benefit more than one period should be allocated over the periods that it affects. On the contrary Revenues should always be recognized immediately in the period earned.

Question 6

Interim Reporting - How would you treat Discontinued Operations and Extraordinary items in interim periods ?

Answer 6

Both Gains and Losses from Discontinued Operations, Extraordinary, or even “Unusual or Infrequent” sections must be recognized in full and reported in the period when they occur.

Those items would affect both net income for the period and the financial notes for the interim period.