Interim Reporting | Advantages and Disadvantages (2024)

FAQs

What are the disadvantages of interim reporting? ›

Problems in Interim Reporting

Since interim reporting is based on a shorter period, the relevance of results becomes less precise, leading to inaccurate decision-making. Estimates and judgments based on interim reports may not be accurate for decisions made regarding the company.

There is a concern regarding the accuracy of the interim report as the company may issue a report in which the organization is showing a better report than it is. The company may do so that the investors get attracted towards the company and invest heavily in it.

Interim reports are used to provide an overview of the company's financial performance before the end of the financial reporting cycle. This helps increase communication between the public and the business while also providing investors with up-to-the-minute financial information.

(1) Problems of Inventories:

Inventory problem becomes more complex for companies following LIFO method. Interim report may be a problem if the inventory level at the end of reporting period is below than in the beginning of the year.

An interim report is similar to a final report, in that it includes a summary, a brief description of the progress, the evaluation thus far, and an overview of the financial situation. Any delays or deviations to the plan are included and explained, as well as any comparison between actual compared to expected results.

Interim reporting theories typically polarize into two extreme views: the discrete approach (i.e., each interim interval is a stand-alone reporting period), and the integral approach (i.e., an interim period is an integral part of the annual period).

An interim statement is a financial report covering a period of less than one year. Interim statements are used to convey the performance of a company before the end of normal full-year financial reporting cycles. Unlike annual statements, interim statements do not have to be audited.

Interim Reporting Example

Public listed companies come up with quarterly financial numbers, Real estate firms come up with their numbers on a Project basis as and when these projects are completed.

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 circ*mstances and does not duplicate information previously reported.

The interim report should include:

A description of the progress of the project, including what has been accomplished so far, an evaluation of any obstacles that have been encountered, and what remains to be done. A financial report, detailing what funds have been spent and how.

How is interim reporting useful in decision making? ›

An interim report provides information on a company's performance and position before the year-end so the investors, creditors, and public are aware of the filing entity's ability or capacity to generate cash flow and revenue. It also assists in knowing about the company's financial liquidity.

Potential shortcomings

Absent external oversight, managers with bad news to report may be tempted to artificially inflate revenue and profits in interim reports. Midyear numbers also may omit estimates for bad-debt write-offs, accrued expenses, prepaid items, management bonuses, or income taxes.

Perhaps the biggest drawback of financial statements is that they do not reflect the current situation to the fullest extent as they are based on past data of the previous period. This is why Knowledge of financial statement limitations could help you to reduce invested funds in a business.

The review is performed by the entity's auditor, and. The interim financial information is prepared in accordance with an applicable financial reporting framework.

Unlike annual statements, interim statements do not have to be audited. Interim statements increase communication between companies and the public and provide investors with up-to-date information between annual reporting periods. These may also be referred to as interim reports.