Educational Material on

Indian Accounting Standard (Ind AS) 34,

Interim Financial Reporting

The Institute of Chartered Accountants of India

(Set up by an Act of Parliament)
NEW DELHI
July | 2022 | P3095 (New)
 Contents

Sr. Particulars Page No.

No.

I Ind AS 34 - Summary 7

II Frequently Asked Questions (FAQs) 12

III Appendix I: Major Differences between Ind AS 34, Interim 54

Financial Reporting and IAS 34, Interim Financial
Reporting

Appendix II: Major Differences between Ind AS 34, Interim 55

Financial Reporting and AS 25, Interim Financial Reporting
 Foreword

Implementation of Indian Accounting Standards (Ind AS) in our Country was a

significant step. We at the Institute of Chartered Accountants of India (ICAI) are
committed to playing a leading role for smooth implementation of Ind AS and
have been taking various initiatives for creating awareness and providing
guidance on Ind AS. Amongst its various initiatives, ICAI issues Educational
Materials on Ind AS with the objective to provide guidance on the application and
implementation of each Ind AS. These Educational Materials have been found
highly useful by the preparers, auditors and other stakeholders in discharge of
their functions. Accounting Standards Board (ASB) of ICAI has formulated the
Educational Material on Ind AS 34, Interim Financial Reporting which seeks to
provide guidance by way of Frequently Asked Questions (FAQs) to explain the
principles enunciated in the Standard. This publication will provide guidance to
stakeholders on content of an interim financial report, application of the
recognition and measurement principles to an interim financial report and various
other aspects related to such Report.

I express my sincere gratitude and appreciation for the efforts put in by CA.
Pramod Jain, Chairman, CA. Abhay Chhajed, Vice-chairman, Accounting
Standards Board, members of the Board and members of the Study Group for
their sincere efforts in preparing this Educational material.

I am sure that the publication would be of immense use to professionals and

other stakeholders while implementing and applying this Ind AS.

New Delhi CA. (Dr.) Debashis Mitra

June 20, 2022 President, ICAI
 Preface
The ICAI always strives for continuous improvement of financial reporting and
plays a proactive role of catalyst in carrying out substantial reforms in the
financial reporting framework to describe economic reality as faithfully and
neutrally as possible. Today, due to relentless efforts of the ICAI in close co-
ordination and interaction with various regulators and stakeholders, the financial
reporting standards in force in India are comparable with the best practices
across the world.

We at ICAI are proud of our contribution in ensuring that our financial reporting
standards are aligned with the international standards and best practices. In the
larger interest of the Indian economy and industries, the ICAI through its
Accounting Standards Board (the Board) takes various initiatives, from time to
time, to train accounting professionals, create awareness and provide necessary
guidance to its members and other stakeholders to ensure that the Standards
are implemented in the same spirit in which these have been formulated.

Moving forward in this direction, I am pleased to mention that the Board has
come out with Educational Material on Ind AS 34, Interim Financial Reporting. An
interim financial report is a complete or condensed set of financial statements for
an interim period which is shorter than a full financial year. Ind AS 34 does not
specify which entities must publish an interim financial report. This is generally a
matter for relevant law and government regulations. Ind AS 34 applies if an entity
following Ind AS in its annual financial statements publishes an interim financial
report that asserts compliance with Ind AS. Ind AS 34 prescribes the minimum
content of such an interim financial report. It also specifies the recognition and
measurement principles applicable to an interim financial report. The Board has
prepared this Educational Material to provide guidance in the form of Frequently
Asked Questions (FAQs) on the practical issues that the preparers of the
financial statements face while applying this Ind AS.

I would like to convey my sincere gratitude to our Honourable President, CA.

Debashis Mitra and Vice-President, CA. Aniket Talati for providing us the
opportunity of bringing out this publication. I am ever thankful to Vice-Chairman,
CA. Abhay Chhajed for his continued support in effective functioning of the
Board. I would also like to thank all the members of the Board for their valuable
contribution in various endeavours of the Board.

I am highly thankful to CA. Dayaniwas Sharma for leading the Study Group and
also appreciate all the members of the Study Group comprising CA. Gururaj
Acharya, CA. Mohan Lavi, CA. Vinayak Pai, CA. Sundaresan S, CA. Sunil
Bhumralkar, CA. Manohar Gupta, CA. Udupi Vikram, CA. Gopalakrishnan R and
CA. Kamal for preparing the draft of this material.

I would like to acknowledge the sincere efforts and support of CA. S.N. Gupta,
Head Technical Directorate, CA. Parminder Kaur, Secretary to the Board, CA.
Ruchika Gupta, Assistant Project Officer and CA. Prachi Jain, Assistant
Secretary for their valuable contribution in bringing out this Educational Material.

I believe that this publication would be of immense use and great help to the
members and other stakeholders for overall understanding and implementation
of Ind AS 34.

New Delhi CA. Pramod Jain

June 15, 2022 Chairman
Accounting Standards Board
 Summary 7

Educational Material on Ind AS 34, Interim

Financial Reporting

I. SUMMARY
[The purpose of this summary is to help the reader gain a broad understanding of
the principal requirements of Ind AS 34 (or ‘the Standard’). Reference should be
made to the complete text of the Standard for a complete understanding of these
requirements or in dealing with a practical situation.]

Objective

Ind AS 34 prescribes the minimum content of an interim financial report and

prescribes the principles for recognition and measurement in complete or
condensed financial statements for an interim period.

Scope

This Standard applies if an entity is required or elects to publish an interim

financial report in accordance with Indian Accounting Standards (Ind ASs).

If an entity’s interim financial report is described as complying with Ind ASs, it

must comply with all the requirements of this Standard.

Definitions

Interim period is a financial reporting period shorter than a full financial year.

Interim financial report means a financial report containing either a complete set
of financial statements (as described in Ind AS 1) or a set of condensed financial
statements (as described in this Standard) for an interim period.
8 Summary

Content of an interim financial report

The Standard prescribes minimum components for preparation of Interim

financial report both for complete set of financial statements and for a set of
condensed financial statements.

The interim financial report is intended to provide an update on the latest

complete set of annual financial statements. Accordingly, it focuses on new
activities, events, and circumstances and does not duplicate information
previously reported.

This Standard does not prohibit or discourage an entity from publishing a

complete set of financial statements (as described in Ind AS 1) in its interim
financial report. Nor does this Standard prohibit or discourage an entity from
including in condensed interim financial statements more than the minimum line
items or selected explanatory notes as set out in this Standard.

The recognition and measurement guidance in this Standard also applies to

complete financial statements for an interim period, and such statements would
include all the disclosures required by this Standard as well as those required by
other Ind ASs.

An interim financial report is prepared on a consolidated basis if the entity’s most

recent annual financial statements were consolidated statements.

Minimum components of an interim financial report

An interim financial report should, at a minimum, include the following

components:
 a condensed balance sheet ;
 a condensed statement of profit and loss;
 a condensed statement of changes in equity;
 a condensed statement of cash flows; and
 selected explanatory notes.
 Summary 9

Significant events and transactions and other disclosures

An entity shall include in its interim financial report an explanation of events and
transactions that are significant to an understanding of the changes in financial
position and performance of the entity since the end of the last annual reporting
period. Information disclosed in relation to those events and transactions shall
update the relevant information presented in the most recent annual financial
report.

Ind AS 34 requires the following:

 mandatory information (paragraph 16A) that shall be disclosed, and
 an illustrative list of events and transactions (paragraph 15B) for which
disclosures would be required if they are significant.

When an event or transaction is significant to an understanding of the

changes in an entity’s financial position or performance since the last annual
reporting period, its interim financial report should provide an explanation of
and an update to the relevant information included in the financial statements
of the last annual reporting period.
Disclosure of compliance with Ind ASs
If an entity’s interim financial report is in compliance with this Standard, that fact
shall be disclosed. An interim financial report shall not be described as complying
with Ind ASs unless it complies with all of the requirements of Ind ASs.

Periods for which interim financial statements are required to be

presented
The Standard prescribes the reporting periods for which the interim financial
statements (Balance Sheet, Statement of Profit and Loss, Statement of Changes
in Equity and Statement of Cash flows) are required to be presented.

For an entity whose business is highly seasonal, financial information for the
twelve months up to the end of the interim period and comparative
information for the prior twelve-month period may be useful. Accordingly,
entities whose business is highly seasonal are encouraged to consider
reporting such information in addition to the information called for in the
preceding paragraph.
10 Summary

Materiality
In deciding how to recognise, measure, classify, or disclose an item for interim
financial reporting purposes, materiality shall be assessed in relation to the
interim period financial data. In making assessments of materiality, the Standard
acknowledges that interim measurements may rely on estimates to a greater
extent than measurements of annual financial data.

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 but a separate financial report
is not published for that final interim period, the nature and amount of that
change in estimate shall be disclosed in a note to the annual financial statements
for that financial year.

Recognition and measurement

Same accounting policies as annual

An entity shall apply the same accounting policies in its interim financial
statements as are applied in its annual financial statements, except for
accounting policy changes made after the date of the most recent annual
financial statements that are to be reflected in the next annual financial
statements.

The frequency of an entity’s reporting (annual, half-yearly, or quarterly) shall not

affect the measurement of its annual results.

To achieve that objective, measurements for interim reporting purposes shall be

made on a year-to-date basis.

For Example- Income tax expense is recognised in each interim period based on
the best estimate of the weighted average annual income tax rate expected for
the full financial year. Amounts accrued for income tax expense in one interim
period may have to be adjusted in a subsequent interim period of that financial
year if the estimate of the annual income tax rate changes.
 Summary 11

Revenues received seasonally, cyclically, or occasionally

Revenues that are received seasonally, cyclically, or occasionally within a
financial year shall not be anticipated or deferred as of an interim date if
anticipation or deferral would not be appropriate at the end of the entity’s
financial year.

Costs incurred unevenly during the financial year

Costs that are incurred unevenly during an entity’s financial year shall be
anticipated or deferred for interim reporting purposes if, and only if, it is also
appropriate to anticipate or defer that type of cost at the end of the financial year.

Use of estimates
The measurement procedures to be followed in an interim financial report shall
be designed to ensure that the resulting information is reliable and that all
material financial information that is relevant to an understanding of the financial
position or performance of the entity is appropriately disclosed.

Preparation of interim financial reports generally will require a greater use of

estimation methods than annual financial reports.

Restatement of previously reported interim periods

A change in accounting policy, other than one for which the transition is specified
by a new Ind AS, shall be reflected by:

 restating the financial statements of prior interim periods of the

current financial year and the comparable interim periods of any
prior financial years that will be restated in the annual financial
statements in accordance with Ind AS 8; or
 when it is impracticable to determine the cumulative effect at the
beginning of the financial year of applying a new accounting policy to all
prior periods, adjusting the financial statements of prior interim
periods of the current financial year, and comparable interim periods
of prior financial years to apply the new accounting policy
prospectively from the earliest date practicable.
12 Frequently Asked Questions (FAQs)

II. Frequently Asked Questions (FAQs)

Question 1
Should Interim Financial Reports be presented / published by every company to
whom Ind AS applies? When does Ind AS 34 apply?

Response
Paragraph 1 of Ind AS 34, Interim Financial Reporting states as under:

“1 This Standard does not mandate which entities should be required to

publish interim financial reports, how frequently, or how soon after the end of
an interim period. However, governments, securities regulators, stock
exchanges, and accountancy bodies often require entities whose debt or
equity securities are publicly traded to publish interim financial reports1. This
Standard applies if an entity is required or elects to publish an interim
financial report in accordance with Indian Accounting Standards (Ind ASs).
[Refer Appendix 1].”
In view of the above, Ind ASs do not require the presentation of interim financial
statements. Ind AS 34 also does not mandate which entity should be required to
publish interim financial reports. However, governments, securities regulators,
stock exchanges, and accountancy bodies often prescribe requirements
relating to preparation and reporting of interim financial reports.

Therefore, in the absence of any specific regulatory requirement or obligation of

the entity, the entity is not required to publish interim financial information in
compliance with Ind AS 34. An entity may choose to prepare interim financial
statements on a voluntary basis. Ind AS 34 applies only if an entity applying Ind

1 Unaudited Financial Results required to be prepared and presented under Clause

41* of Listing Agreement with stock exchanges is not an ‘Interim Financial Report’
as defined in paragraph 4 of this Standard.
* Presently, entities are required prepare and present its interim financial results as per
regulation 33 of SEBI (Listing Obligation and Disclosure requirements) Regulations.
 Frequently Asked Questions (FAQs) 13

AS in its annual financial statements is required or elects to publish an interim

financial report in accordance with Ind ASs.

In other words, Ind AS 34 applies if an entity either elects or is required to publish

an interim financial report in accordance with Ind AS. Accordingly, if an entity’s
interim financial report states that it complies with Ind ASs, then all the
requirements of Ind AS 34 must be complied with in its interim financial
statements.
Question 2

ABC Ltd. is required to provide interim financial report as per local regulatory
requirements. While reporting interim financial statements, it applies all Ind AS
recognition and measurement principles but it does not provide all the
disclosures required by Ind AS 34. Whether ABC Ltd. can describe such financial
statements as complying with Ind ASs?

Response
In the given case, ABC Ltd. prepares its interim financial statements complying
only with the measurement and recognition principles of all Ind ASs. Further, it
has been noted that it has not complied with the disclosure requirements of Ind
AS 34.

In this regard, paragraphs 1, 3 and 19 of Ind AS 34, Interim Financial Reporting

state as follows:

“1 This Standard does not mandate which entities should be required to

publish interim financial reports, how frequently, or how soon after the
end of an interim period. However, governments, securities regulators,
stock exchanges, and accountancy bodies often require entities whose
debt or equity securities are publicly traded to publish interim financial
reports2. This Standard applies if an entity is required or elects to publish

2 Unaudited Financial Results required to be prepared and presented under Clause

41* of Listing Agreement with stock exchanges is not an ‘Interim Financial Report’
as defined in paragraph 4 of this Standard.
* Presently, entities are required prepare and present its interim financial results as
per regulation 33 of SEBI (Listing Obligation and Disclosure requirements)
Regulations.
14 Frequently Asked Questions (FAQs)

an interim financial report in accordance with Indian Accounting

Standards (Ind ASs). [Refer Appendix 1].”

“3 If an entity’s interim financial report is described as complying with Ind

ASs, it must comply with all of the requirements of this Standard. Paragraph
19 requires certain disclosures in that regard.”
“Disclosure of compliance with Ind ASs
19 If an entity’s interim financial report is in compliance with this
Standard, that fact shall be disclosed. An interim financial report shall
not be described as complying with Ind ASs unless it complies with all
of the requirements of Ind ASs.”
In view of the above, Ind AS 34 applies if an entity applying Ind AS in its annual
financial statements, either elects or is required to publish an interim financial
report. Accordingly, if an entity’s interim financial report states that it complies
with Ind ASs, then all the requirements of Ind AS 34 must also be complied with.

An entity’s interim financial report can be described as complying with Ind ASs
only if it meets all of the requirements of Ind AS 34. Accordingly, an entity that
applies all Ind ASs recognition and measurement requirements in its interim
financial report, but does not provide all the disclosures required in Ind AS 34
then such an interim financial report cannot be described as complying with Ind
AS.
Therefore, ABC Ltd. cannot describe its interim financial results to be in
compliance with Ind AS.

Question 3
Whether a reporting entity should disclose the fact that an interim financial report
is in compliance with Ind ASs, if the reporting entity does not prepare interim
financial reports as per Ind AS but prepares the year-end financial statements as
per Ind AS? Can it make the explicit disclosure of compliance with Ind ASs as
per Ind AS 1, Presentation of Financial Statements in the annual financial
statements?

Response

Paragraph 19 of Ind AS 34, Interim Financial Reporting, states as under:

 Frequently Asked Questions (FAQs) 15

“19 If an entity’s interim financial report is in compliance with this

Standard, that fact shall be disclosed. An interim financial report shall not
be described as complying with Ind ASs unless it complies with all of the
requirements of Ind ASs.”

Based on the above, if the reporting entity prepares its interim financial reports
which complies with Ind AS 34 and all other Ind ASs, then it should disclose that
the entity’s interim financial report is in compliance with Ind ASs.

There may be a case where the reporting entity prepares its interim financial
report that do not comply with either all or some of the requirements of Ind ASs,
however, the year-end financial statements prepared by the same entity, comply
with all of the requirements of Ind ASs.

In this context, the following requirements of paragraph 2 of Ind AS 34, Interim

Financial Reporting may be noted:

“2 Each financial report, annual or interim, is evaluated on its own for

conformity to Ind ASs. The fact that an entity may not have provided interim
financial reports during a particular financial year or may have provided interim
financial reports that do not comply with this Standard does not prevent the
entity’s annual financial statements from conforming to Ind ASs if they otherwise
do so.”

Based on the above , even though the interim financial reports are not prepared
as per the requirements of Ind ASs but if the year-end financial statements
comply with all of the requirements of Ind ASs, such year-end financial
statements shall be described to have been complying with Ind ASs.

Question 4

What is the objective of permitting an entity to present condensed set of financial

statements vis-à-vis a complete set of financial statement?

Response

The objective of permitting an entity to present condensed set of financial

statements is to provide less information at interim dates as compared with its
annual financial statements, considering timeliness and cost considerations.
16 Frequently Asked Questions (FAQs)

The interim financial report is intended to provide an update on the latest

complete set of annual financial statements. Accordingly, it focuses on new
activities, events and circumstances and does not duplicate information
previously reported.

It may be noted that the Standard does not prohibit or discourage an entity from
publishing a complete set of financial statements or including in condensed
interim financial statements more than the minimum line items or selected
explanatory notes as set out in the Standard.

While Ind AS 1, Presentation of Financial Statements does not apply to the

structure and content of condensed interim financial statements, paragraphs 15-
35 of Ind AS 1 containing general features of preparing financial statements,
such as, principles of fair presentation, accrual basis of accounting, materiality,
aggregation, offsetting and going concern apply to such financial statements.

Furthermore, there is no difference in recognition and measurement principles in

presentation of interim financial reports as either a complete set of financial
statements or as a set of condensed financial statements. The recognition and
measurement principles for preparing interim financial reports are specified in
paragraphs 28 to 41 of Ind AS 34, Interim Financial Reporting. The Standard lays
down a single recognition and measurement principle that apply to both
“complete set” and “condensed set” of interim financial statements.

Question 5
Management of R Ltd. is of the view that in its interim financial report, it can
present a three-line condensed statement of cash flows showing only a total of
operating, investing and financing cash flow activities. Whether the contention of
the management correct?

Response

A condensed statement of cash flows is one of the primary statements that is

included as part of interim financial report as prescribed by paragraph 8 of Ind
AS 34, Interim Financial Reporting.
 Frequently Asked Questions (FAQs) 17

While presenting condensed statement of cash flows, a reporting entity should

take into consideration the requirements of paragraphs 10, 15 and 25 of Ind AS
34 which state as under:

“10 If an entity publishes a set of condensed financial statements in its

interim financial report, those condensed statements shall include, at a
minimum, each of the headings and subtotals that were included in its
most recent annual financial statements and the selected explanatory
notes as required by this Standard. Additional line items or notes shall be
included if their omission would make the condensed interim financial
statements misleading.”
“Significant events and transactions
15 An entity shall include in its interim financial report an explanation of
events and transactions that are significant to an understanding of the
changes in financial position and performance of the entity since the end of
the last annual reporting period. Information disclosed in relation to those
events and transactions shall update the relevant information presented in
the most recent annual financial report.”
“25 While judgement is always required in assessing materiality, this
Standard bases the recognition and disclosure decision on data for the
interim period by itself for reasons of understandability of the interim figures.
Thus, for example, unusual items, changes in accounting policies or
estimates, and errors are recognised and disclosed on the basis of
materiality in relation to interim period data to avoid misleading inferences
that might result from non-disclosure. The overriding goal is to ensure that an
interim financial report includes all information that is relevant to
understanding an entity’s financial position and performance during the
interim period.”
The interim report should be prepared in a manner that it contains all information,
explanation of events and transactions that is relevant to understand the
changes in financial position and performance of the entity during the interim
period. Information about cash flows help users to understand a reporting entity’s
operations, evaluate its financing and investing activities, assess its liquidity or
solvency and interpret other information about financial performance.
18 Frequently Asked Questions (FAQs)

Accordingly, applying guidance given in in paragraphs 10, 15 and 25 of Ind AS

34, a condensed statement of cash flows should include all information that is
relevant in understanding the entity’s ability to generate cash flows and the
entity’s needs to utilise those cash flows. A three-line presentation alone is not
expected to meet the requirements of Ind AS 34.

Question 6
What constitutes “selected explanatory notes” in a set of condensed financial
statements?
Response
In the interest of timeliness and cost considerations and to avoid repetition of
information previously reported, an entity may be required to or may elect to
provide less information at interim dates as compared with its annual financial
statements. Ind AS 34 defines the minimum content of an interim financial report
as including condensed financial statements and selected explanatory notes.

Paragraphs 15 and 15A of Ind AS 34, Interim Financial Reporting state as under:
“15 An entity shall include in its interim financial report an explanation of events
and transactions that are significant to an understanding of the changes in
financial position and performance of the entity since the end of the last annual
reporting period. Information disclosed in relation to those events and
transactions shall update the relevant information presented in the most recent
annual financial report.
15A A user of an entity’s interim financial report will have access to the most
recent annual financial report of that entity. Therefore, it is unnecessary for the
notes to an interim financial report to provide relatively insignificant updates to
the information that was reported in the notes in the most recent annual financial
report.”
Further, paragraph 15B of Ind AS 34 provides an illustrative list of events and
transactions for which disclosures would be required if they are significant.
Furthermore, paragraph 16A of Ind AS 34 provides list of information which
needs to be included in the interim financial report.
 Frequently Asked Questions (FAQs) 19

Also, as per paragraph 10 of Ind AS 34, additional notes or line items should be
included if their omission would make the condensed interim financial statements
misleading.
Therefore, the composition of “selected explanatory notes” in a set of condensed
financial statements will require exercise of judgment. In this regard, the entity
would be guided by the objective and requirements of paragraphs 6, 10, 15, 15A,
15B and 16A of Ind AS 34.

Question 7
Company A incurs its significant advertising expense in the first quarter of the
current financial year. It did not disclose the advertising expenditure incurred last
year as a separate line item in its last annual financial statement. Can an entity
present additional line items or selected explanatory notes in its condensed
interim financial statements that were not included in the most recent annual
financial statements?

Response
Paragraphs 10 and 23 of Ind AS 34, Interim Financial Reporting state as under:

“10 If an entity publishes a set of condensed financial statements in its

interim financial report, those condensed statements shall include, at a
minimum, each of the headings and subtotals that were included in its
most recent annual financial statements and the selected explanatory
notes as required by this Standard. Additional line items or notes shall be
included if their omission would make the condensed interim financial
statements misleading.”

“23 In deciding how to recognise, measure, classify, or disclose an item

for interim financial reporting purposes, materiality shall be assessed in
relation to the interim period financial data. In making assessments of
materiality, it shall be recognised that interim measurements may rely on
estimates to a greater extent than measurements of annual financial data.”

Based on the above, if entity believes that certain additional information is

required to be disclosed for proper interpretation of the condensed interim
financial statements and the omission of such information would make such
condensed financial statements misleading, then such information should be
20 Frequently Asked Questions (FAQs)

included as additional line items or notes in the condensed interim financial

statements.

In the instant case, the cost incurred by Company A in the previous year may not
be significant enough in the context of the annual financial statements, to require
separate disclosure. However, if based on evaluation of its facts it is determined
by the company that the cost incurred by it during the quarter pertaining to
advertising expenditure is material in relation to interim financial reporting, it
should disclose the same irrespective of the fact that the said line item was not
presented in its last annual financial statement.

Question 8

Company A had disclosed a contingent liability of Rs. 25 lakhs in the notes to

annual financial statements as on March 31, 2021. This has remained
unchanged as on June 30, 2021. Company A does not disclose the amount of
contingent liability in the condensed interim financial statements for the period
ended June 30, 2021 as there is no change in the nature and amount of
contingent liability during the interim period Apr 1, 2021 – June 30, 2021.
Comment on the appropriateness of the treatment.

Response
Paragraphs 15, 15A and 15C of Ind AS 34, Interim Financial Reporting state as
under:
“15 An entity shall include in its interim financial report an explanation of
events and transactions that are significant to an understanding of the
changes in financial position and performance of the entity since the end of
the last annual reporting period. Information disclosed in relation to those
events and transactions shall update the relevant information presented in
the most recent annual financial report.
15A A user of an entity’s interim financial report will have access to the
most recent annual financial report of that entity. Therefore, it is unnecessary
for the notes to an interim financial report to provide relatively insignificant
updates to the information that was reported in the notes in the most recent
annual financial report.”
 Frequently Asked Questions (FAQs) 21

“15C Individual Ind ASs provide guidance regarding disclosure requirements

for many of the items listed in paragraph 15B. When an event or transaction
is significant to an understanding of the changes in an entity’s financial
position or performance since the last annual reporting period, its interim
financial report should provide an explanation of and an update to the
relevant information included in the financial statements of the last annual
reporting period.”
Ind AS 34 presumes that users of an entity’s interim financial report also have
access to its most recent annual financial report. Though condensed financial
statements avoid duplicating previously reported information and focus on new
activities, events and circumstances, if the amount of contingent liability is
material and relevant for an understanding of the financial statements, its
disclosure in the notes to the condensed interim financial statements would be
required. Information is material if omitting it or misstating it could influence
decisions that users make based on the financial information.

Accordingly, if the contingent liability of Rs. 25 lakhs is material for Company A,

then it should disclose the amount of contingent liability as on 30th June, 2021,
notwithstanding the fact that there was no change in the contingent liability from
that as on 31st March, 2021.
Further, since there has been no change in the nature and amount of contingent
liability, the company may not give an explanation about the contingent liability,
as the same is already provided in the previous year end annual financial
statements.
However, if the contingent liability of Rs. 25 lakhs as on 31st March, 2021 has
significantly increased / reduced as on 30th June, 2021, then in the condensed
interim financial statements as on 30th June, 2021, Company A must disclose not
only the nature and amount of contingent liability but also an explanation
regarding the significant changes in contingent liability. (Refer paragraph 15B(m)
of Ind AS 34).

Question 9

ABC Ltd. purchased 100% of ownership interest in DEF Ltd. on 25th August,
2020 for a consideration of Rs. 82.75 crores. On 2nd September, 2020, ABC Ltd.
sold 60% of its ownership interest in its fully owned subsidiary XYZ Ltd. for a
22 Frequently Asked Questions (FAQs)

consideration of Rs. 100 crores. Are the above events required to be disclosed in
the interim financial reports of ABC Ltd?

Response

As per the facts of the case, ABC Ltd. has obtained control of DEF Ltd. and lost
control of its erstwhile subsidiary, XYZ Ltd. during the same interim period.

Paragraph 16A of Ind AS 34, Interim Financial Reporting, inter-alia, states,

“16A In addition to disclosing significant events and transactions in

accordance with paragraphs 15–15C, an entity shall include the following
information, in the notes to its interim financial statements, or elsewhere in
the interim financial report. The following disclosures shall be given either
in the interim financial statements or incorporated by cross-reference from
the interim financial statements to some other statement (such as
management commentary or risk report) that is available to users of the
financial statements on the same terms as the interim financial statements
and at the same time. If users of the financial statements do not have
access to the information incorporated by cross reference on the same
terms and at the same time, the interim financial report is incomplete. The
information shall normally be reported on a financial year-to-date basis.

(a)-(h)…

(i) the effect of changes in the composition of the entity during the
interim period, including business combinations, obtaining or losing
control of subsidiaries and long-term investments, restructurings, and
discontinued operations. In the case of business combinations, the entity
shall disclose the information required by Ind AS 103, Business
Combinations.

(j)-(l)…”

Based on the above, the effect of changes in the composition of ABC Ltd. due to
acquisition of a new subsidiary DEF Ltd. and loss of control of its erstwhile
subsidiary XYZ Ltd. should be disclosed in the interim financial statements of
ABC Ltd.
 Frequently Asked Questions (FAQs) 23

Question 10
When are recognition and measurement requirements of any new or revised
standards applied while preparing condensed interim financial statements of an
entity?

Response
The recognition and measurement requirements of any new or revised standards
are applied to all interim periods within the annual period in which the new
standards are first adopted unless the transitional requirements of a standard
permit or require otherwise.

Generally, when amendment to existing standard or a new standard is issued, its

transitional provisions prescribe its applicability date including whether it is
required to be applied prospectively or retrospectively.

Furthermore, paragraph 19 of Ind AS 34 Interim Financial Reporting, state as

under:
“19 If an entity’s interim financial report is in compliance with this
Standard, that fact shall be disclosed. An interim financial report shall not
be described as complying with Ind ASs unless it complies with all of the
requirements of Ind ASs.”

Based on the above, it can be concluded that an interim financial report shall be
described as complying with Ind AS only when all the requirements of Ind AS
including any new or revised standard applicable for the current year are
complied with.

Question 11
If a legislation requires disclosure of additional line items on the face of the
balance sheet and statement of profit and loss applicable for the year ending on
or after March 31, 2022, whether a reporting entity is required to comply with the
requirement to present additional line items, while preparing condensed financial
statements for the interim period ending June 30, 2021?
24 Frequently Asked Questions (FAQs)

Response

Paragraph 10 of Ind AS 34, Interim Financial Reporting states as under:

“10 If an entity publishes a set of condensed financial statements in its

interim financial report, those condensed statements shall include, at a
minimum, each of the headings and subtotals that were included in its
most recent annual financial statements and the selected explanatory
notes as required by this Standard. Additional line items or notes shall be
included if their omission would make the condensed interim financial
statements misleading.”

Paragraph 10 above requires an entity to present, at a minimum, the line items

and notes that were presented in its last annual financial statement. However,
the said paragraph also states that an entity shall provide additional line items or
notes if their omission would make the financial statements misleading.
Accordingly, if additional line items are prescribed to be presented on the face of
the balance sheet and statement of profit and loss that is applicable for the
current annual reporting period, then such line items shall be presented while
preparing condensed interim financial statements of the current reporting period,
if their omission will render the information contained in the condensed interim
financial statements misleading.

Question 12

What are the “periods” for which interim financial statements are required to be
presented?

Response

Paragraph 20 of Ind AS 34, Interim Financial Reporting states as follows:

“20 Interim reports shall include interim financial statements (condensed

or complete) for periods as follows:

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.
 Frequently Asked Questions (FAQs) 25

b) statements of profit and loss for the current interim period and
cumulatively for the current financial year to date, with
comparative statements of profit and loss for the comparable
interim periods (current and year-to-date) of the immediately
preceding financial year.

c) statement of changes in equity cumulatively for the current

financial year to date, with a comparative statement for the
comparable year-to-date period of the immediately preceding
financial year.

d) statement of cash flows cumulatively for the current financial

year to date, with a comparative statement for the comparable
year-to-date period of the immediately preceding financial
year.”

An illustration of periods required to be presented is provided herein below:

a) Entity publishes interim financial reports quarterly

The entity’s financial year ends on 31st March. The entity will present the
following financial statements (condensed or complete) in its interim financial
report of 30 Sep 20X1.

Balance sheet at 30 Sep 31 Mar 20X1 - -

20X1
Statement of profit 3 months 3 months 6 months 6
and loss for ended 30 ended 30 Sep ended 30 months
Sep 20X1 20X0 Sep 20X1 ended3
0 Sep
20X0
Statement of 6 months 6 months - -
changes in equity ended 30 ended 30 Sep
for Sep 20X1 20X0
Statement of cash 6 months 6 months - -
flows for ended 30 ended 30 Sep
Sep 20X1 20X0
26 Frequently Asked Questions (FAQs)

b) Entity publishes interim financial reports half-yearly

The entity’s financial year ends 31st March. The entity will present the following
financial statements (condensed or complete) in its half-yearly interim financial
report of 30 September 20X1

Balance sheet at 30 Sep 20X1 31 Mar 20X1

Statement of profit and 6 months ending 30 Sep 6 months ending 30
loss for 20X1 Sep 20X0
Statement of changes 6 months ending 30 Sep 6 months ending 30
in equity for 20X1 Sep 20X0
Statement of cash flows 6 months ending 30 Sep 6 months ending 30
for 20X1 Sep 20X0

Question 13

R Ltd. annual reporting period ends on 31st March and it reports its interim results
quarterly. During the first quarter, its revenue is mainly generated from sale of its
product M. Only a minor percentage of its revenue is attributed to pilot sale of its
new product N that it is planning to launch in the next quarter. It expects that
revenue from the sale of the said product will increase significantly by the end of
the annual reporting period such that product N will provide approximately 20%
of the entity’s annual revenue. Should “materiality threshold” in the interim
financial statement be assessed with respect to interim period or annual period?

Response

Paragraphs 23, 24 and 25 of Ind AS 34, Interim Financial Reporting state as

follows:

“23 In deciding how to recognise, measure, classify, or disclose an item for

interim financial reporting purposes, materiality shall be assessed in
relation to the interim period financial data. In making assessments of
materiality, it shall be recognised that interim measurements may rely on
estimates to a greater extent than measurements of annual financial data.
 Frequently Asked Questions (FAQs) 27

24 3Ind AS 1 defines material information and requires separate disclosure of

material items, including (for example) discontinued operations, and Ind AS 8,
Accounting Policies, Changes in Accounting Estimates and Errors requires
disclosure of changes in accounting estimates, errors, and changes in
accounting policies. The two Standards do not contain quantified guidance as to
materiality.
25 While judgement is always required in assessing materiality, this Standard
bases the recognition and disclosure decision on data for the interim period by
itself for reasons of understandability of the interim figures. Thus, for example,
unusual items, changes in accounting policies or estimates, and errors are
recognised and disclosed on the basis of materiality in relation to interim period
data to avoid misleading inferences that might result from non-disclosure. The
overriding goal is to ensure that an interim financial report includes all information
that is relevant to understanding an entity’s financial position and performance
during the interim period.”

An entity makes materiality judgements in preparing both annual financial

statements and interim financial reports prepared in accordance with Ind AS 34,
Interim Financial Reporting. For its interim financial report, the entity considers
the same materiality factors as in its annual assessment. However, it takes into
consideration that the time period and the purpose of an interim financial report
differ from those of the annual financial statements.

In making materiality judgements on its interim financial report, an entity focuses

on the period covered by that report, that is:

(a) it assesses whether information in the interim financial report is material in

relation to the interim period financial data, not annual data.

(b) it applies the materiality factors on the basis of both the current interim period
data and also, whenever there is more than one interim period (eg in the case of
quarterly reporting), the data for the current financial year to date.

(c) it may consider whether to provide in the interim financial report information
that is expected to be material to the annual financial statements. However,

3 Substituted vide Notification No. G.S.R. 463(E) dated 24th July, 2020.
28 Frequently Asked Questions (FAQs)

information that is expected to be material to the annual financial statements

need not be provided in the interim financial report if it is not material to the
interim financial report.

An entity is required to apply judgment based on evaluation of facts and

circumstances of each case to determine whether a transaction or event is
material or not.

Further, paragraph 114 of Ind AS 115, Revenue from Contracts with Customers
states as follows:

“114 An entity shall disaggregate revenue recognised from contracts with

customers into categories that depict how the nature, amount, timing and
uncertainty of revenue and cash flows are affected by economic factors. An
entity shall apply the guidance in paragraphs B87–B89 when selecting the
categories to use to disaggregate revenue.”
In the given case, if based on assessment of all facts and circumstances it is
determined by the entity that information about revenue from Product N is not
qualitatively material to the interim financial statements then the entity is not
required to disclose revenue from product N in its interim financial report.
Further, the entity is not required to disaggregate its revenue by product lines in
accordance with paragraph 114 of Ind AS 115.

In other words, although the revenue of product N is expected to be material

information for the annual financial statements, that fact does not influence the
materiality assessment in the preparation of the entity’s interim financial report.

Question 14

An entity publishes interim financial statement for first 3 quarters and thereafter
publishes the annual financial statements without publishing the separate results
for the 4th quarter. In such a case, if there is a significant change in the nature
and amount of any estimate made in 3rd quarter, then should the same be
disclosed?
 Frequently Asked Questions (FAQs) 29

Response

Paragraph 26 of Ind AS 34, Interim Financial Reporting states as under:

“26 If an estimate of an amount reported in an interim period is

changed significantly during the final interim period of the financial year
but a separate financial report is not published for that final interim period,
the nature and amount of that change in estimate shall be disclosed in a
note to the annual financial statements for that financial year.”

In view of the above, if an estimate has changed significantly during the final
interim period of the year and the same has not been reported as separate
interim financial report is not published for that interim period, an entity is
required to disclose the following in the notes to the annual financial statements
for that year:
 nature of estimate and
 amount of change in estimate made in an interim period

In the instant case, the entity publishes interim financial statement for first 3
quarters and thereafter publishes the annual financial statements without
publishing the separate results for the 4th quarter. In such a case, if there is a
significant change in the nature and amount of any estimate made in 3rd quarter,
which would have been disclosed in the 4th quarter if it had prepared the interim
financial statements for the quarter, then the same should be disclosed in the
annual financial statements.

Question 15

ABC Ltd. requires assistance on whether the following revenue can be

anticipated or cost can be deferred as of 30th June, 2021 while preparing the
interim financial statements:
a) Dividend income from its investment which is declared in September of
every year.
b) 60% of the advertising cost for the whole year is incurred by ABC Ltd. in
the first quarter and the remaining 40% in the second quarter.
30 Frequently Asked Questions (FAQs)

Response

Paragraphs 37, 38 and 39 of Ind AS 34, Interim Financial Reporting state as

under:

“37 Revenues that are received seasonally, cyclically, or occasionally

within a financial year shall not be anticipated or deferred as of an interim
date if anticipation or deferral would not be appropriate at the end of the
entity’s financial year.

38 Examples include dividend revenue, royalties, and government grants.

Additionally, some entities consistently earn more revenues in certain interim
periods of a financial year than in other interim periods, for example, seasonal
revenues of retailers. Such revenues are recognised when they occur.
Costs incurred unevenly during the financial year
39 Costs that are incurred unevenly during an entity’s financial year shall
be anticipated or deferred for interim reporting purposes if, and only if, it is
also appropriate to anticipate or defer that type of cost at the end of the
financial year.”

In view of the above guidance, in the given case, dividend income received by
ABC Limited cannot be anticipated and recognised in financial statements as of
30th June, 2021.

Further, considering that 60% of advertising cost for the whole year has been
incurred by ABC Ltd during the first quarter and 40% in the second quarter, it is a
cost incurred unevenly. Applying principles of paragraph 39, it is not appropriate
to defer the charge of an incurred advertising expense (60% of whole year cost)
at the end of the quarter. Accordingly, all the advertising costs incurred till 30th
June, 2021 should be charged to P&L while preparing its financial statements as
of 30th June, 2021.

Question 16

How should a reporting entity that is preparing interim financial statements, make
use of estimates? Explain with examples.
 Frequently Asked Questions (FAQs) 31

Response

Measurements in accounting are based on a reasonable estimation process. The

use of estimates is inherent in the financial reporting process be it annual or
interim financial reports. However, the preparation of interim financial reports will
require relatively a greater use of estimation methods in comparison with annual
reporting. The measurement procedures to be followed in interim financial
reporting should be designed to achieve the objectives of providing reliable and
relevant information to users of financial statements.

Paragraphs 35, 36 and 41 of Ind AS 34, Interim Financial Reporting state as

follows:

“35 An entity that reports half-yearly uses information available by mid-year or

shortly thereafter in making the measurements in its financial statements for the
first six-month period and information available by year-end or shortly thereafter
for the twelve-month period. The twelve-month measurements will reflect
possible changes in estimates of amounts reported for the first six-month period.
The amounts reported in the interim financial report for the first six-month period
are not retrospectively adjusted. Paragraphs 16A (d) and 26 require, however,
that the nature and amount of any significant changes in estimates be disclosed.

36 An entity that reports more frequently than half-yearly measures income

and expenses on a year-to-date basis for each interim period using information
available when each set of financial statements is being prepared. Amounts of
income and expenses reported in the current interim period will reflect any
changes in estimates of amounts reported in prior interim periods of the financial
year. The amounts reported in prior interim periods are not retrospectively
adjusted. Paragraphs 16A (d) and 26 require, however, that the nature and
amount of any significant changes in estimates be disclosed.”
“Use of estimates
41 The measurement procedures to be followed in an interim financial
report shall be designed to ensure that the resulting information is reliable
and that all material financial information that is relevant to an
understanding of the financial position or performance of the entity is
appropriately disclosed. While measurements in both annual and interim
financial reports are often based on reasonable estimates, the preparation
32 Frequently Asked Questions (FAQs)

of interim financial reports generally will require a greater use of estimation

methods than annual financial reports.”

A reporting entity preparing interim financial statements should make appropriate

estimates based on the above guidance. Examples of the use of estimates in
interim financial statements are:

a) Provisions

As per paragraph 14 of Ind AS 37, Provisions, Contingent Liabilities and

Contingent Assets, a provision shall be recognised when: (a) an entity has a
present obligation (legal or constructive) as a result of a past event; (b) it is
probable that an outflow of resources embodying economic benefits will be
required to settle the obligation; and (c) a reliable estimate can be made of
the amount of the obligation. If these conditions are not met, no provision
shall be recognised.

Further, paragraph 28 of Ind AS 34 requires an entity to apply the same

accounting policies in its interim financial statements as are applied in its
annual financial statements. It also states that ‘the frequency of an entity’s
reporting (annual, half-yearly, or quarterly) shall not affect the measurement
of its annual results. To achieve that objective, measurements for interim
reporting purposes shall be made on a year-to-date basis.’

Accordingly, the entity would update the prior annual provision (like warranty
provisions, decommissioning obligations) for the purpose of interim financial
statements applying the same criteria of recognition and measurement as are
applied in its annual financial statements the amount of provisions (like
warranty provisions, decommissioning obligations).

b) Pensions

Ind AS 19, Employee Benefits requires an entity to determine the present value
of defined benefit obligations and the fair value of plan assets (if any) at the end
of each reporting period and encourages an entity to involve a professionally
qualified actuary in measuring the obligations. For interim reporting purposes,
 Frequently Asked Questions (FAQs) 33

reliable measurement is often obtainable by extrapolation of the latest actuarial

valuation.

Question 17

Should a third Balance sheet at the beginning of the comparative period be

presented in the Interim Financial Report when there is a change in accounting
policy either voluntarily or due to initial application of an Ind AS?

Response

As per Ind AS 34, Interim Financial Reporting, interim financial report means a
financial report containing either a complete set of financial statements (as
described in Ind AS 1, Presentation of Financial Statements), or a set of
condensed financial statements (as described in Ind AS 34) for an interim period.

Paragraph 5 of Ind AS 34, Interim Financial Reporting, inter-alia, states as under:

“5 Ind AS 1 defines a complete set of financial statements as including the

following components:

(a)-(ea) …and,
(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, or when it reclassifies items
in its financial statements in accordance with paragraphs 40A–40D of Ind
AS 1.”

Therefore, an entity that has opted to provide a complete set of interim financial
statements shall present a third balance sheet i.e. balance sheet at the beginning
of the comparative period when it applies an accounting policy retrospectively.
Furthermore, the minimum components of a condensed interim financial
report are specified in paragraph 8 of Ind AS 34, Interim Financial Reporting
as mentioned below:
“Minimum components of an interim financial report
8 An interim financial report shall include, at a minimum, the
following components:
34 Frequently Asked Questions (FAQs)

(a) a condensed balance sheet ;

(b) a condensed statement of profit and loss;
(c) a condensed statement of changes in equity;
(d) a condensed statement of cash flows; and
(e) selected explanatory notes.”
Accordingly, from the above, the minimum components of a condensed financial
statement do not include a third balance sheet i.e. balance sheet at the
beginning of the comparative period when it applies an accounting policy
retrospectively.
In addition paragraph 43 of Ind AS 34 states as under:

“43 A change in accounting policy, other than one for which the transition is
specified by a new Ind AS, shall be reflected by:

(a) restating the financial statements of prior interim periods of the current
financial year and the comparable interim periods of any prior financial
years that will be restated in the annual financial statements in accordance
with Ind AS 8; or

(b) when it is impracticable to determine the cumulative effect at the beginning

of the financial year of applying a new accounting policy to all prior periods,
adjusting the financial statements of prior interim periods of the current
financial year, and comparable interim periods of prior financial years to
apply the new accounting policy prospectively from the earliest date
practicable.”
Further, paragraphs 19, 22 and 23 of Ind AS 8, Accounting Policies, Changes in
Accounting Estimates and Errors state as follows:

“Applying changes in accounting policies

19 Subject to paragraph 23:

(a) an entity shall account for a change in accounting policy resulting

from the initial application of an Ind AS in accordance with the
specific transitional provisions, if any, in that Ind AS; and
 Frequently Asked Questions (FAQs) 35

(b) when an entity changes an accounting policy upon initial application

of an Ind AS that does not include specific transitional provisions
applying to that change, or changes an accounting policy
voluntarily, it shall apply the change retrospectively.”

“Retrospective application
22 Subject to paragraph 23, when a change in accounting policy is
applied retrospectively in accordance with paragraph 19(a) or (b), the entity
shall adjust the opening balance of each affected component of equity for
the earliest prior period presented and the other comparative amounts
disclosed for each prior period presented as if the new accounting policy
had always been applied.

Limitations on retrospective application

23 When retrospective application is required by Para 19(a) or (b), a
change in accounting policy shall be applied retrospectively except to the
extent that it is impracticable to determine either the period-specific effects
or the cumulative effect of the change.”

Based on above, in case where an entity that has opted to provide a set of
condensed financial statements and makes a change in an accounting policy
retrospectively needs to give effect to the change by adjusting the retained
earnings at the beginning of the preceding period.

It may be noted that Ind AS 34 does not include the requirements of Ind AS 1 in
respect of balance sheet as at the beginning of the preceding period when
preparing condensed interim financial statements. As a consequence, in
condensed interim financial statements, it is not necessary to provide an
additional balance sheet as at the beginning of the earliest comparative period
presented where an entity has made a retrospective change in an accounting
policy (or a retrospective restatement or a retrospective reclassification).
However, an entity may present a third balance sheet on a voluntary basis.

Question 18

MNC Ltd. recognised an impairment loss in respect of goodwill and other

36 Frequently Asked Questions (FAQs)

intangible assets in its interim financial statements prepared for quarter 2 by

applying the principles of Ind AS 36, Impairment of Assets. Subsequently, by the
end of the reporting period it has been assessed that the value of these assets
including goodwill has increased significantly during the period.
Can MNC Ltd. reverse impairment loss in respect of these assets including
goodwill recognised in Q2 while preparing its annual financial statements at the
end of the reporting period?

Response

Paragraph 28 of Ind AS 34, Interim Financial Reporting requires an entity to

apply the same accounting policies in its interim financial statements as are
applied in its annual financial statements. It also states that ‘the frequency of
an entity’s reporting (annual, half-yearly, or quarterly) shall not affect the
measurement of its annual results. To achieve that objective, measurements
for interim reporting purposes shall be made on a year-to-date basis.’

In the given case, the entity has recognised impairment losses in respect of its
intangible assets including goodwill while preparing its interim financial
statements by following the requirements of Ind AS 36, Impairment of Assets.

Paragraph 124 of Ind AS 36, Impairment of Assets states, “An impairment

loss recognised for goodwill shall not be reversed in a subsequent
period.”

Further, following guidance for interim financial reporting and impairment losses
in respect of goodwill is provided in Appendix A to Ind AS 34, Interim Financial
Reporting. Paragraphs 8 and 9 of Appendix A to Ind AS 34 state as follows:

“8 An entity shall not reverse an impairment loss recognised in a previous

interim period in respect of goodwill.

9 An entity shall not extend this accounting principle by analogy to other areas
of potential conflict between Ind AS 34 and other Indian Accounting Standards.”
 Frequently Asked Questions (FAQs) 37

Considering the above guidance reversal of impairment of goodwill is prohibited

in a subsequent period, be it annual or interim financial statements. With regard
to reversal of impairment of other intangible assets, the impairment loss can be
reversed if other requirements of Ind AS 36, Impairment of Assets are met.

Accordingly, in the given case, MNC Ltd. cannot reverse the impairment loss
recognised in respect of goodwill but it can reverse impairment loss recognised
in respect of other intangible assets (assuming the requirements of Ind AS 36 are
met).

Question 19

Diva Ltd. determined the defined benefit obligation at the end of the preceding
financial year using a discount rate of 10% based on market yields on
government bonds. The interest rates for market yields on government bonds
decreased to 8% by the end of the first quarter, which in the judgment of
management materially impacts the financial statements.

Should Diva Ltd. update the net defined benefit obligation for changes in interest
rate during the interim reporting period?

Response

Paragraphs 58 and 59 of Ind AS 19, Employee Benefits, state as follows:

“58. An entity shall determine the net defined benefit liability (asset) with
sufficient regularity that the amounts recognised in the financial
statements do not differ materially from the amounts that would be
determined at the end of the reporting period.

59 This Standard encourages, but does not require, an entity to involve a

qualified actuary in the measurement of all material post -employment
benefit obligations. For practical reasons, an entity may request a qualified
actuary to carry out a detailed valuation of the obligation before the end of
the reporting period. Nevertheless, the results of that valuation are updated
for any material transactions and other material changes in circumstances
(including changes in market prices and interest rates) up to the end of the
reporting period.”
38 Frequently Asked Questions (FAQs)

In accordance with the above, an entity is required to update the results of

actuarial valuations for any material transactions and other material changes in
circumstances (including changes in market prices and interest rates) up to the
end of the reporting period.

Accordingly, in the given case, Diva Ltd. should update the net defined benefit
obligation for changes in interest rate during the interim reporting period.

Question 20

An entity previously applied cost model for measuring all classes of its property,
plant and equipment (PPE). In quarter 3 of the year, the entity changes its
accounting policy to the revaluation model for certain classes of PPE. The entity
issued an interim report for the first 2 quarters in which it applied the cost model
for all its classes of PPE.

How does an entity account for the above change in its accounting policy in its
Interim financial report for quarter 3 and quarter 4?

Response

The entity should account for a change in accounting policy from the cost model
to the revaluation model prospectively from the date on which the decision is
made and the revaluation is determined as per Ind AS 8, Accounting Policies,
Changes in Accounting Estimates and Errors read with Ind AS 16, Property,
Plant and Equipment.

Paragraph 17 of Ind AS 8 state as follows:

“17 The initial application of a policy to revalue assets in accordance with

Ind AS 16, Property, Plant and Equipment, or Ind AS 38, Intangible Assets,
is a change in an accounting policy to be dealt with as a revaluation in
accordance with Ind AS 16 or Ind AS 38, rather than in accordance with this
Standard.”
 Frequently Asked Questions (FAQs) 39

When an entity changes its policy from the cost model to the revaluation model
under Ind AS 16, it is an exception to the principle of retrospective adjustment of
earlier interim periods. These are not changes in accounting policy that are
covered by Ind AS 8 in the usual manner, but instead required to be treated as a
revaluation in the period. Therefore, the general requirements of Ind AS 34 do
not override the specific requirements of Ind AS 8 to treat such changes
prospectively.

In the above example, the entity shall account for the revaluation in the interim
financial statements of quarter 3 and depreciation on revalued assets shall be
accounted for in quarter 3 and quarter 4 interim financial reports. However, since
a change to revaluation policy would result in depreciation charge on different
basis (cost in the earlier quarter and revaluation in quarter 3), it would be
necessary to provide adequate disclosure and explanation in the interim financial
statements.

Question 21

ABC Limited manufactures automobile parts. ABC Limited has shown a net profit
of Rs. 20,00,000 for the third quarter of 2021.

Following adjustments are made while computing the net profit:

(i) Bad debts of Rs.1,00,000 incurred during the quarter. 50% of the bad debts
have been deferred to the next quarter.

(ii) Loss of Rs. 3,00,000 due to fire incurred during the quarter has been fully
recognised in this quarter.

(iii) Additional depreciation of Rs. 4,50,000 resulting from the change in the
method of depreciation.

(iv) Rs. 5,00,000 expenditure on account of administrative expenses pertaining to

the third quarter is deferred on the argument that the fourth quarter will have
more sales; therefore fourth quarter should be debited by higher expenditure.
The expenses are uniform throughout all quarters.
40 Frequently Asked Questions (FAQs)

Ascertain the correct net profit to be shown in the Interim Financial Report of
third quarter.

Response

The following guidance provided in Ind AS 34, Interim Financial Reporting may
be noted:

“28 An entity shall apply the same accounting policies in its interim
financial statements as are applied in its annual financial statements,
except for accounting policy changes made after the date of the most
recent annual financial statements that are to be reflected in the next
annual financial statements. However, the frequency of an entity’s
reporting (annual, half-yearly, or quarterly) shall not affect the
measurement of its annual results. To achieve that objective,
measurements for interim reporting purposes shall be made on a year-
to-date basis.”
“33 4An essential characteristic of income (revenue) and expenses is that
the related inflows and outflows of assets and liabilities have already taken
place. If those inflows or outflows have taken place, the related revenue and
expense are recognised; otherwise they are not recognised. The Conceptual
Framework does not allow the recognition of items in the balance sheet
which do not meet the definition of assets or liabilities.”
“Costs incurred unevenly during the financial year
39 Costs that are incurred unevenly during an entity’s financial year
shall be anticipated or deferred for interim reporting purposes if, and
only if, it is also appropriate to anticipate or defer that type of cost at
the end of the financial year.”

In the instant case, the quarterly net profit has not been correctly stated.
Considering the above guidance, the quarterly net profit should be adjusted and
restated as follows:

(i) Bad debts of Rs.1,00,000 have been incurred during current quarter. Out of
this, the company has deferred 50% (i.e.) Rs. 50,000 to the next quarter.

4
Substituted vide Notification No. G.S.R. 419(E) dated 18th June, 2021.
 Frequently Asked Questions (FAQs) 41

This treatment is not correct as the expenses incurred during an interim

reporting period should be recognised in the same period unless conditions
mentioned in paragraph 39 of Ind AS 34 are fulfilled. Accordingly, Rs.
50,000 should be deducted from Rs. 20,00,000.

(ii) The treatment of loss of Rs. 3,00,000 being recognised in the same quarter
is correct.

(iii) Recognising additional depreciation of Rs. 4,50,000 in the same quarter is

correct and is in accordance with Ind AS 34.

(iv) Deferment Rs. 5,00,000 expenditure on account of administrative expenses

pertaining to the third quarter is not in accordance with requirements of Ind
AS 34 as expenses are uniform throughout all quarters.

Thus, considering the above, the correct net profits to be shown in interim
financial report of the third quarter shall be Rs. 14,50,000 (Rs. 20,00,000 - Rs.
50,000 - Rs. 5,00,000).

Question 22

PQR Ltd. is preparing its interim financial statements for quarter 3 of the year.
How the following transactions and events should be dealt with while preparing
its interim financials:

(i) It makes employer contributions to government-sponsored insurance funds

that are assessed on an annual basis. During Q1 and Q2 larger amount of
payments for this contribution were made, while during the Q3 minor
payments were made (since contribution is made upto a certain maximum
level of earnings per employee and hence for higher income employees,
the maximum income reaches before year end).

(ii) The entity intends to incur major repair and renovation expense for the
office building. For this purpose, it has started seeking quotations from
vendors. It also has tentatively identified a vendor and expected costs that
will be incurred for this work.
42 Frequently Asked Questions (FAQs)

(iii) The company has a practice of declaring bonus of 10% of its annual
operating profits every year. It has a history of doing so.

Response

Paragraph 28 of Ind AS 34, Interim Financial Reporting states that an entity

shall apply the same accounting recognition and measurement principles in
its interim financial statements as are applied in its annual financial
statements.

Further, paragraphs 32 and 33 of Ind AS 34, Interim Financial Reporting state as

under:
“32 For assets, the same tests of future economic benefits apply at interim
dates and at the end of an entity’s financial year. Costs that, by their nature,
would not qualify as assets at financial year-end would not qualify at interim
dates either. Similarly, a liability at the end of an interim reporting period
must represent an existing obligation at that date, just as it must at the end of
an annual reporting period.
33 5An essential characteristic of income (revenue) and expenses is that the
related inflows and outflows of assets and liabilities have already taken
place. If those inflows or outflows have taken place, the related revenue and
expense are recognised; otherwise they are not recognised. The Conceptual
Framework does not allow the recognition of items in the balance sheet
which do not meet the definition of assets or liabilities.”

Considering the above guidance, the transactions and events of the instant case
should be dealt with as follows while preparing its interim financials:

(i) If employer contributions to government-sponsored insurance funds are

assessed on an annual basis, the employer’s related expense is recognised
using an estimated average annual effective contribution rate in its interim
financial statements, even though a large portion of the payments have been
made early in the financial year. Accordingly, it should work out an average
effective contribution rate and account for the same accordingly, in its interim
financials.

5
Substituted vide Notification No. G.S.R. 419(E) dated 18th June, 2021.
 Frequently Asked Questions (FAQs) 43

(ii) The cost of a planned overhaul expenditure that is expected to occur in later
part of the year is not anticipated for interim reporting purposes unless an event
has caused the entity to have a legal or constructive obligation. The mere
intention or necessity to incur expenditure related to the future is not sufficient to
give rise to an obligation.

(iii) A bonus is anticipated for interim reporting purposes, if and only if,

(a) the bonus is a legal obligation or past practice would make the bonus a
constructive obligation for which the entity has no realistic alternative but to
make the payments, and

(b) a reliable estimate of the obligation can be made. Ind AS 19, Employee
Benefits provides guidance in this regard.

A liability for bonus may arise out of legal agreement or constructive obligation
(in the absence of legal obligation, in case an entity has a practice of paying
bonus) because of which it has no alternative but to pay the bonus and
accordingly, needs to be accrued in the annual financial statements.

Bonus liability is accrued in interim financial statements on the same basis as

they are accrued for annual financial statements. In the instant case, bonus
liability of 10% of operating profit for the year to date may be accrued.

In the given case, since the company has past record of declaring annual bonus
every year, the same may be accrued using a reasonable estimate (applying the
principles of Ind AS 19, Employee Benefits) while preparing its interim results.

Question 23

Cuba Ltd. is in the process of preparing its interim financial statements. It came
across the following events while preparing the financials and is confused as to
whether the impact of these events is to be given while preparing its interim
results:
44 Frequently Asked Questions (FAQs)

(i) It plans to make significant purchases in the next three months. Whether it
will have any impact on the depreciation to be charged to P&L in the interim
period.

(ii) It is in the process of wage negotiation and anticipates increase in wages of

5% although the demand from the employees is increase in wages of 15%.

Response

Paragraph 30(b) of Ind AS 34, Interim Financial Reporting states, “A cost that
does not meet the definition of an asset at the end of an interim period is not
deferred in the balance sheet either to await future information as to whether it
has met the definition of an asset or to smooth earnings over interim periods
within a financial year.”

Further, paragraph 33 of Ind AS 34 state as, “An essential characteristic of

income (revenue) and expenses is that the related inflows and outflows of
assets and liabilities have already taken place. If those inflows or outflows
have taken place, the related revenue and expense are recognised;
otherwise they are not recognised. The Conceptual Framework does not
allow the recognition of items in the balance sheet which do not meet the
definition of assets or liabilities.”

Considering the above guidance, the transactions and events in the instant case
should be dealt with as follows while preparing its interim results:

(i) Depreciation and amortisation commence when the related asset is ready for
its intended use and ceases at the point they qualify for de-recognition.
Depreciation and amortisation for an interim period follows the same principles.

Planned asset purchases in subsequent interim periods of a financial year do not

affect the depreciation and amortisation expense of the current interim period.

Depreciation and amortisation for an interim period is based only on assets

owned during that interim period. It does not take into account asset acquisitions
and dispositions planned for subsequent interim periods in the financial year.
 Frequently Asked Questions (FAQs) 45

Note: The above response has been given only from expense accrual stand
point and for the sake of simplicity the implications of the above event for
assessment of income tax expense for the year/interim period has not been
considered.

(ii) The entity needs to make a provision for increase in wages based on the best
estimate at which it expects to settle the obligation at the end of the interim
reporting period.

Price changes should be recognised as assets or liabilities in interim financial

reports if they meet the definition of an asset or liability. Such changes are
recognised in interim periods, if it is probable that the same will take effect.

Question 24

How should income tax expense be measured in interim financial reports?

Explain with the help of examples?

Response

Paragraph 28 of Ind AS 34, Interim Financial Reporting state as under:

“28 An entity shall apply the same accounting policies in its interim
financial statements as are applied in its annual financial statements,
except for accounting policy changes made after the date of the most
recent annual financial statements that are to be reflected in the next
annual financial statements. However, the frequency of an entity’s
reporting (annual, half-yearly, or quarterly) shall not affect the
measurement of its annual results. To achieve that objective,
measurements for interim reporting purposes shall be made on a year-
to-date basis.”
As provided in paragraph 28 above, an entity shall apply the same accounting
recognition and measurement principles in its interim financial statements as
are applied in its annual financial statements.

Further, as provided in paragraph 30(c) of Ind AS 34, income tax expense is

46 Frequently Asked Questions (FAQs)

recognised in each interim period based on the best estimate of the weighted
average annual income tax rate expected for the full financial year. Amounts
accrued for income tax expense in one interim period may have to be adjusted in
a subsequent interim period of that financial year if the estimate of the annual
income tax rate changes.

Accordingly, income tax expense for the interim period is accrued using the
estimated average annual effective income tax rate applied to the pre-tax income
of the interim period.

Income taxes are assessed on an annual basis. The estimated average annual
rate would be a reflection of the progressive tax rate structure expected to be
applicable to the full year’s earnings including enacted or substantively enacted
changes in the income tax rates scheduled to take effect later in the financial
year.

Income tax expense is the aggregate amount in respect of current tax and
deferred tax. Accordingly, in arriving at the estimated average annual effective
income tax rate, the aggregate tax expense estimate for the year needs to be
considered, consistent with paragraph 28 of Ind AS 34.

Under tax laws, deductible expenditures are based on amounts of capital

expenditure on property, plant and equipment, intangible assets, research and
development, etc. The estimated tax benefit for the full year with respect to such
expenditure is taken into consideration while arriving at the estimate of average
annual effective income tax rate.

The estimated average annual effective income tax rate is required to be re-
estimated on a year-to-date basis at the end of each interim reporting period. In
arriving at the interim period income tax expense, jurisdiction- wise profit before
tax (PBT), income categories taxed at different rates need to be considered.

Let us understand the above mentioned principles by way of few examples as

illustrated below:
 Frequently Asked Questions (FAQs) 47

Example 1
Applicable tax rate
The tax rate slab applicable to companies for a financial year is as provided in
the table herein below:
Taxable income Base tax Surcharge Health and Tax
rate education rate
cess
Upto Rs. 1 crores 25% 0% 4% 26.00%
Rs. 1 crores – Rs 10 25% 7% 4% 27.82%
crores
Exceeds Rs. 10 25% 12% 4% 29.12%
crores

PBT of Company A
The projected and actual quarter-wise PBT and taxable income of Company A
for a financial year are as follows:

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Annual

Rs. 0.50 cr Rs. 5.50 cr Rs 8.00 cr Rs. 10.00 cr Rs 24.00 cr

Estimating tax expense in interim financial statements

In the preparation of its interim financial statements for the first quarter, the
company needs to apply the estimated weighted average annual effective
income tax rate. As the company expects annual PBT of Rs. 24 crores, the
company will therefore, provide for income taxes of Rs. 0.1456 crores in the first
quarter by applying 29.12%, being the estimated weighted average annual
effective income tax rate to the quarter’s PBT of Rs. 0.50 crores.

Following table reflects the quarter-wise income tax calculation:

Particulars Quarter 1 Quarter 2 Quarter 3 Quarter 4 Annual

PBT (A) Rs. 0.50 cr Rs. 5.50 crRs 8.00 cr Rs.10.00 cr Rs. 24.00
cr
EAAEITR1(B) 29.12% 29.12% 29.12% 29.12% 29.12%
Tax Rs.0.1456 Rs. 1.6016 Rs.2.3296 Rs. 2.912 Rs. 6.9888
expense cr cr cr cr cr
(A*B)
1Estimated Average Annual Effective Income Tax Rate
48 Frequently Asked Questions (FAQs)

Example 2 – Change in enacted tax rate during the financial year

(Continuing from facts of Example 1)

In the preparation of its interim financial statements for the first quarter, the
company recognises tax expense based on the estimated weighted average
annual effective tax rate. Company A’s tax liability for the full financial year is
based on taxable income of Rs. 24 crores. The applicable tax rate is 29.12%
being the tax rate applicable to income exceeding Rs. 10 crores. Accordingly, it
provides income tax expense of Rs. 0.1456 crores for the first quarter.

Before the finalisation of the accounts for the second quarter, the government
enacts revised tax rate for the year by reducing it to 25.17% (base rate plus
surcharge).

Company A will provide income taxes based on the revised estimated average
annual effective income tax rate viz. 25.17% for the six months ending in the
second quarter.

The income tax expense for the second quarter is arrived at by multiplying the
PBT for the six-month period (Rs. 6.00 crores) with the revised rate of 25.17%
giving a total current tax liability of Rs. 1.5102 crores (6.00*25.17%) and reducing
it by the amount of taxes provided in the first quarter (Rs. 0.1456 crores).

The income tax expense for the second quarter would therefore be Rs. 1.3646
crores.

Example 3
Company B reports Rs. 3,75,000 PBT in the first quarter. The estimated PBT for
each of the remaining quarters is a loss of Rs. 1,25,000. The applicable tax rate
is 30% for all levels of taxable income.

The following table shows the amount of income tax expense that would be
reported in each quarter:
Tax expense by quarter
(Amount in Rs.)
Particulars Quarter 1 Quarter 2 Quarter 3 Quarter 4 Annual
PBT (A) 3,75,000 (1,25,000) (1,25,000) (1,25,000) 0
Applicable 30% 30% 30% 30% NA
 Frequently Asked Questions (FAQs) 49

tax rate (B)

Tax 1,12,500 (37,500) (37,500) (37,500) 0
expense
(A*B)

Example 4

Company C expects to earn pre-tax income of Rs. 2,50,000 per quarter. It

operates in a tax jurisdiction with an applicable tax rate of 25% on the first Rs.
5,00,000 of annual earnings and 30% for additional earnings.
The following table shows the amount of income tax expense that would be
reported in each quarter:

Tax expense by quarter

(Amount in Rs.)
Particulars Quarter 1 Quarter 2 Quarter 3 Quarter 4 Annual
PBT (A) 2,50,000 2,50,000 2,50,000 2,50,000 10,00,000
1
EAAEITR (B) 27.5% 27.5% 27.5% 27.5% 27.5%2
Tax expense 68,750 68,750 68,750 68,750 2,75,000
(A*B)
1Estimated Average Annual Effective Income Tax Rate

2The tax liability for the full year is 2,75,000 (5,00,000 *25%+ 5,00,000 *30%) and

the estimated average annual effective income tax rate is 27.5%

(2,75,000/10,00,000)

Example 5

Carry forward of Unused (unabsorbed) tax losses

Company D has tax losses brought forward at the beginning of the financial year
amounting to Rs. 2,50,000. It has not recognised a deferred tax asset as at the
end of the most recent financial year. The entity earns Rs. 2,50,000 PBT in the
first quarter and the same is expected to continue for each of the remaining
quarters. It is presumed that the criteria of Ind AS 12, Income Taxes with regard
to probability of taxable profit against which the unused tax losses and credits
can be utilised is met. Applicable tax rate is 30%.
50 Frequently Asked Questions (FAQs)

Ind AS 12 provides the criteria for assessing the probability of taxable profit
against which the unused tax losses and credits can be utilised.

In this regard, Ind AS 12 provides that “a deferred tax asset shall be recognised
for the carryforward of unused tax losses and unused tax credits to the extent
that it is probable that future taxable profit will be available against which the
unused tax losses and unused tax credits can be utilised.” Ind AS 12 provides
the criteria for assessing the probability of taxable profit against which the
unused tax losses and credits can be utilised. Such criteria need to be evaluated
at the end of each interim financial period and where it is met, the effect of tax
loss carry forward needs to be reflected in the computation of the estimated
average annual effective income tax rate.

In the instant case, such criteria need to be evaluated at the end of each interim
financial period. Assuming that such criteria is met, the effect of tax loss carry
forward would be reflected in the computation of the estimated average annual
effective income tax rate.

The following table shows the amount of income tax expense that would be
reported in each quarter:

Tax expense by quarter

Amounts in Rs.
Quarter Quarter Quarter Quarter Annual
1 2 3 4
PBT (A) 2,50,000 2,50,000 2,50,000 2,50,000 10,00,000
EAAEITR1(B) 22.5% 22.5% 22.5% 22.5% 22.5%2
Tax expense 56,250 56,250 56,250 56,250 2,25,000
(A*B)

1Estimated Average Annual Effective Income Tax Rate

2The tax liability for the full year would be Rs. 2,25,000 ((Rs.2,50,000*4 minus
brought forward loss Rs.2,50,000)*30%) and the estimated average annual
effective income tax rate would be 22.5% (Rs. 2,25,000/10,00,000)

Example 6: When different rates of tax are applicable to different portions

of the estimated annual accounting income
 Frequently Asked Questions (FAQs) 51

To the extent practicable, a separate estimated average annual effective income

tax rate is determined for each tax jurisdiction and is applied individually to the
interim period pre-tax income of each jurisdiction. Moreover, if different tax rates
apply to different categories of income viz. capital gain, income from profits and
gains from business or profession etc. then to the extent practicable, a separate
rate is applied to each individual category of pre-tax income.

While the above is desirable, but may not be achievable in all cases and a
weighted average rate across jurisdiction or across income categories may be
used if it is a reasonable approximation of the effect of using more specific rates.

Estimated annual income is Rs. 1 lakh (inclusive of estimated capital gains of Rs.
20,000). Assume Tax Rates are as follows:
On Capital Gains 10%.
On Other Income: On First Rs. 40,000 - 30%
Balance Income - 40%

Assuming there is no difference between the estimated taxable income and the
estimated accounting income.

Tax Expense:
On Capital Gains portion of annual income: 10% of Rs. 20,000 = Rs. 2,000
On Other Income: 30% of Rs. 40,000 + 40% of Rs.40,000 = Rs. 28,000
Total: Rs.30,000

Weighted Average Annual Effective Tax Rate:

On Capital Gains portion of annual income: 2,000/20,000× 100 = 10%
On Other Income: 28,000/80,000 × 100 = 35%

If the estimated income of each quarter is Rs.25,000 and income of Rs.25,000

for 2nd Quarter includes capital gains of Rs.20,000, the tax expense for each
quarter will be calculated as below:
52 Frequently Asked Questions (FAQs)

Quarter Income Tax Expense

(in Rs.) (in Rs.)
Quarter I 25,000 35% of 25,000= 8,750
Quarter II :
Capital Gains income 20,000 10% of 20,000 = 2,000
Other Income 5,000 35% of 5,000 = 1,750
Total tax expense for Q2 3,750
Quarter III 25,000 35% of Rs.25,000 = 8,750

Quarter IV 25,000 35% of Rs. 25,000 = 8,750

Total tax expense for the year 30,000

Question 25

MNO Ltd. has made definite plans to acquire certain item of property, plant and
equipment (PPE). It has entered into a contract with a vendor to supply the said
PPE. As per the terms of the contract, the delivery of the said item of PPE would
be made in fourth Quarter. Can the entity take the benefit of tax deduction on
account of depreciation available for tax purpose on the aforesaid PPE (to be
acquired) while preparing the interim financial statements of 1st, 2nd and 3rd
Quarters for the purpose of calculation of income tax expense?

Response

As provided in paragraph 30(c) of Ind AS 34, Interim Financial Reporting, income

tax expense is recognised in each interim period based on the best estimate of
the weighted average annual income tax rate expected for the full financial year.
Amounts accrued for income tax expense in one interim period may have to be
adjusted in a subsequent interim period of that financial year if the estimate of
the annual income tax rate changes.
Accordingly, interim period income tax expense is accrued using the tax rate that
would be applicable to expected total annual earnings, that is, the estimated
average annual effective income tax rate applied to the pre-tax income of the
interim period.
 Frequently Asked Questions (FAQs) 53

Under tax laws, capital expenditure on property, plant and equipment, intangible
assets, research and development, etc. are tax deductible. The estimated tax
benefit for the full year with respect to such expenditure is taken into
consideration in arriving at the estimate of average annual effective income tax
rate.

In arriving at the best estimate of the weighted average annual income tax rate,
the assets that would qualify for tax depreciation and book depreciation on the
annual basis needs to be considered and the current and deferred taxes are
recognised accordingly. The assets that are expected to be capitalised in
subsequent interim periods of a financial year would therefore be considered in
arriving at an estimate of the tax rate that would be applicable for the full financial
year.

Accordingly, in the given case MNO Ltd. can take the benefit of the expected tax
deduction on account of depreciation that will be charged on the said item of
PPE when it will be put to use in the fourth quarter.
54 Appendix I

Appendix I

Note: The purpose of this Appendix is only to bring out the major differences, if
any, between Indian Accounting Standard (Ind AS) 34, Interim Financial
Reporting and the corresponding International Accounting Standard (IAS) 34,
Interim Financial Reporting, issued by the International Accounting Standards
Board.

Major difference between Ind AS 34, Interim Financial

Reporting and IAS 34, Interim Financial Reporting
(i) A footnote has been added to paragraph 1 of Ind AS 34, Interim Financial
Reporting that unaudited financial results required to be prepared and
presented under Clause 41 of listing agreement with stock exchanges is not
an ‘Interim Financial Report’ as defined in paragraph 4 of this Standard.

(ii) IAS 34 (paragraphs 8A and 11A) provides option either to follow single
statement approach or to follow two statement approaches. Ind AS 34 allows
only single statement approach on the lines of Ind AS 1, Presentation of
Financial Statements, which also allows only single statement approach.
 Appendix II 55

Appendix II

Note: The purpose of this Appendix is only to bring out the major differences, if
any, between Indian Accounting Standard (Ind AS) 34, Interim Financial
Reporting and the Accounting Standard (AS) 25, Interim Financial Reporting.

Major differences between Ind AS 34, Interim Financial

Reporting and AS 25, Interim Financial Reporting
(i) Ind AS 34 requires disclosure by way of an explanation of events and
transactions that are significant to an understanding of the changes in
financial position and performance of the entity since the end of the last
annual reporting period. AS 25 does not specifically requires such
disclosure.
(ii) Ind AS 34 prohibits reversal of impairment loss recognised in a previous
interim period in respect of goodwill (in harmony with paragraph 124 of
Ind AS 36, which prohibits reversal of impairment loss recognised for
goodwill in a subsequent period) or an investment in either an equity
instrument or a financial asset carried at cost. There is no such specific
prohibition in AS 25. Ind AS 34 includes Appendix A which addresses
the interaction between the requirements of Ind AS 34 and the
recognition of impairment losses on goodwill in Ind AS 36 and the effect
of that interaction on subsequent interim and annual financial
statements.
(iii) Under AS 25, if an entity’s annual financial report included the
consolidated financial statements in addition to the separate financial
statements, the interim financial report should include both the
consolidated financial statements and separate financial statements,
complete or condensed. Ind AS 34 states that it neither requires nor
prohibits the inclusion of the parent’s separate statements in the entity’s
interim report, if an entity’s annual financial report included the parent’s
separate financial statements in addition to consolidated financial
statements.
(iv) AS 25 requires the Notes to interim financial statements (if material and
not disclosed elsewhere in the interim financial report), to contain a
statement that the same accounting policies are followed in the interim
financial statements as those followed in the most recent annual
56 Appendix II

financial statements or, in case of change in those policies, a

description of the nature and effect of the change. Ind AS 34
additionally requires the above information in respect of methods of
computation followed. (Paragraph 16A(a) of Ind AS 34).
(v) While AS 25 requires furnishing of information on contingent liabilities
only, Ind AS 34 requires furnishing of information on both contingent
liabilities and contingent assets, if they are significant. (Paragraph
15B(f)) of Ind AS 34).
(vi) Ind AS 34 requires that, where an interim financial report has been
prepared in accordance with the requirements of Ind AS 34, that fact
should be disclosed. Further, an interim financial report should not be
described as complying with Ind AS unless it complies with all of the
requirements of Ind AS (the latter statement is applicable when interim
financial statements are prepared on complete basis instead of
‘condensed basis’). AS 25 does not contain these requirements.
(Paragraph 19 of Ind AS 34).
(vii) Under AS 25, when an interim financial report is presented for the first
time in accordance with that Standard, an entity need not present, in
respect of all the interim periods of the current financial year,
comparative statements of profit and loss for the comparable interim
periods (current and year-to-date) of the immediately preceding
financial year and comparative cash flow statement for the comparable
year-to-date period of the immediately preceeding financial year. Ind AS
34 does not have this transitional provision.