Interim reporting is the reporting of the financial results of any period that is shorter than a fiscal year. Interim reporting is usually required of any company that is publicly held, and it typically involves the issuance of three quarterly financial statements each year. These statements include:
- Balance sheet. As of the end of the current interim period and the immediately preceding fiscal year.
- Income statement. For the current interim period, and the fiscal year-to-date, and the corresponding periods for the immediately preceding fiscal year.
- Statement of cash flows. For the current fiscal year-to-date period, and the corresponding period for the immediately preceding fiscal year.
The precise format and contents of interim reports issued by publicly-held companies are defined by the Securities and Exchange Commission. These reports are reviewed by a company's auditors, rather than undergoing a complete audit (which would be impractical, given the rapidity with which these reports are released to the public).
There are several factors to consider when constructing interim reports, which are:
- Accounting changes. If there is a change in accounting policy or accounting estimate, report the results of the change in the interim period when it occurred. You should restate the interim results of prior periods when there is a change in accounting policy, but not when there is a change in accounting estimate.
- Accounting policies. You should consistently apply the same accounting policies used for the construction of full-year financial statements to the construction of interim statements. If you plan to apply a new accounting policy to the full-year statements of the current fiscal year, then use them in the interim period, too.
- Cost of goods sold. It is acceptable to use an estimation method to arrive at the cost of goods sold for an interim period, if you have not conducted a physical inventory count.
- Expense recognition. You should charge an expenditure to expense in the period to which the cost is traceable. You may defer recognition of an expense if it affects more than one interim period, and recognize it over those periods.
- LIFO layer liquidation. If you liquidate a LIFO inventory layer during an interim period and expect to replace it before the end of the fiscal year, then include in the cost of goods sold for the interim period the sold units at the cost at which you expect to replace the liquidated LIFO layer.
- Market declines. If market prices decline for inventory items, recognize the related loss in the interim period. It is allowable to reverse this loss if there is a market price gain later in the fiscal year.
- Materiality. If an item is material to the interim period but not to the fiscal year as a whole, then disclose the item separately in the interim report.
- Quantity discounts. If you are granting quantity discounts to customers based on their annual purchases, you should accrue the discount in advance in each interim period, based on their probable annual purchases.
- Retroactive adjustments. As a general rule, do not retroactively adjust prior interim periods within a fiscal year. Exceptions are only allowed if the impact of the adjustment is material to the results of continuing operations for the full fiscal year, and a portion of the adjustment is tied to a specific interim period, and you could not have estimated the amount of the adjustment prior to the current interim period.
- Seasonal or cyclical revenues. You may only recognize seasonal or cyclical revenues when earned. You may not accrue or defer them in an interim period.
- Transaction recognition. You should base the recognition of an accounting transaction in an interim period on what you expect for the company's results for the entire year, not just for the interim period. For example, you should recognize an income tax expense in an interim period that is based on the expected weighted-average income tax rate for the entire year. This treatment may result in a series of accrual adjustments in later interim periods, as you refine your estimates.
A privately-held business also releases interim reports. However, since these reports are usually only distributed internally, the rules regarding their content and format are less specific.