Interim Financial Reporting · 2013-11-20 · 3.1.1 Timely and reliable interim financial reporting improves the ability of users to understand an entity’ s capacity to generate

Accounting Standard AASB 1029October 2000

Interim FinancialReporting

AASBLOGOincludingnameHERE

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Obtaining a Copy of this Accounting StandardCopies of this Standard are available for purchase from the AustralianAccounting Standards Board by contacting:

The Customer Service OfficerAustralian Accounting Standards BoardLevel 3, 530 Collins StreetMelbourne Victoria 3000AUSTRALIA

Phone: (03) 9617 7637Fax: (03) 9617 7608E-mail: [email protected] site: www.aasb.com.au

Other enquiries:

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COPYRIGHT

2000 Australian Accounting Standards Board. The copying of thisStandard is only permitted in certain circumstances. Enquiries should bedirected to the Australian Accounting Standards Board.

ISSN 1036-4803

AASB 1029 3 CONTENTS

CONTENTS

MAIN FEATURES OF THE STANDARD ... page 5Section and page number

1 Application ... 62 Operative Date ... 83 Purpose of Standard ... 84 Materiality … 95 Content of an Interim Financial

Report … 9Financial Statements Included in Interim

Financial Reports… 11Earnings per Share … 13

6 Recognition and Measurement … 13Same Accounting Policies as Applied in

Annual Financial Reports… 13Annually Determined Items … 15Revenues Received Seasonally, Irregularly

or Occasionally … 16Costs Incurred Unevenly During the Annual

Reporting Period … 17Changes in Accounting Policies … 17Use of Estimates … 18Revisions of Estimates … 18Errors… 19Applying the Recognition Criteria and

Measurement Bases … 197 Disclosures … 20

Disclosure in Annual FinancialReports … 25

8 Periods for which Interim FinancialStatements and Notes arePresented … 26

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9 Definitions ... 28Annual Reporting Period ... 33Interim Reporting Period ... 33Corporations Law Definitions ... 34Financial Statements ... 34

APPENDICES1 Illustration of Periods Required to be

Presented … 362 Examples of Applying the Recognition

Criteria and Measurement Bases… 37CONFORMITY WITH INTERNATIONAL AND NEWZEALAND ACCOUNTING STANDARDS ... page 47BACKGROUND TO REVISION… page 48Defined words are italicised each time they appear. Thedefinitions are in Section 9. Standards are printed in bold typeand commentary in light type.

AASB 1029 5 FEATURES

MAIN FEATURES OF THE STANDARDThe Standard is presented in a format that combines the formats previouslyused in Accounting Standards (AASB Standards) and Australian AccountingStandards (AAS Standards) in order to move towards the issue of a singleseries of standards. The Standard:

(a) applies to general purpose interim financial reports, including half-year financial reports of each disclosing entity required to beprepared in accordance with Part 2M.3 of the Corporations Law;

(b) prescribes the minimum content of an interim financial report ascomprising a condensed statement of financial position, a condensedstatement of financial performance, a condensed statement of cashflows and specific disclosures;

(c) states that, the interim financial report is intended to provide anupdate on the most recent annual financial report by focusing on theeffects of transactions, events and circumstances since that report;

(d) requires interim financial reports to be prepared using the sameaccounting policies as applied in the most recent annual financialreport, or, in the case of a change in accounting policy or, where theinterim financial report is prepared during the first annual reportingperiod of the entity, the accounting policies to be applied in the nextannual financial report. This ensures that the criteria for recognisingand bases for measuring assets, liabilities, equity, revenues andexpenses in interim financial statements are the same as for annualfinancial statements and treats each interim period as a discretereporting period;

(e) requires interim financial reports to include comparative interimfinancial information; and

(f) requires disclosure in the annual financial report of information inrespect of accounting policy changes and revisions of estimatesmade in the final current interim period of the annual reportingperiod for which a separate interim financial report is not published.

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ACCOUNTING STANDARD AASB 1029The Australian Accounting Standards Board makes Accounting StandardAASB 1029 “Interim Financial Reporting” under section 334 of theCorporations Law.

F. K. AlfredsonDated 4 October 2000 Chair − AASB

ACCOUNTING STANDARD

AASB 1029 “INTERIM FINANCIALREPORTING”

1 Application1.1 This Standard applies to:

(a) each disclosing entity required to prepare half-yearfinancial reports in accordance with Part 2M.3 of theCorporations Law;

(b) interim financial reports that are general purposefinancial reports of each other reporting entity; and

(c) interim financial reports that are, or are held out to be,general purpose financial reports.

1.1.1 Under the Corporations Law, disclosing entities are required toprepare half-year financial reports. Disclosing entities may alsovoluntarily prepare other general purpose interim financial reports.This Standard prescribes the form and content of general purposeinterim financial reports, including half-year financial reportsprepared by disclosing entities.

1.1.2 This Standard does not mandate the preparation or frequency ofinterim financial reports, or how soon after the end of an interimperiod they should be completed. However, governments, securitiesregulators, stock exchanges and other regulators may require entitiesto prepare interim financial reports that are general purposefinancial reports. This Standard applies if an entity is required orelects to prepare an interim financial report that is a general purpose

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financial report or is held out to be a general purpose financialreport.

1.1.3 Interim financial reports that are intended to be special purposefinancial reports do not fall within the scope of this Standard.However, interim financial reports that are purported to be specialpurpose financial reports but have the characteristics of generalpurpose financial reports fall within the scope of this Standard.Interim financial reports that are widely available but lack thecharacteristics of general purpose financial reports, are not regardedas general purpose financial reports. An example is selectedinterim summary financial information, such as turnover and profit,voluntarily released by some entities. Another example would bemonthly or quarterly reports for the general government sector. Insome cases, professional judgement is needed to determine whethera particular interim report is a general purpose financial report.

1.2 Where the entity is an economic entity, the interim financialreport must be prepared on a consolidated basis.

1.2.1 If the entity’s most recent annual financial report included its ownseparate financial report in addition to the consolidated financialreport, this Standard neither requires nor prohibits the inclusion ofthe entity’s own separate financial report in the interim financialreport. However, where the entity elects to include its own separatefinancial report in the interim financial report, its own separatefinancial report is also subject to the requirements of this Standard.

1.2.2 Each annual or interim financial report is evaluated on its own forconformity with Accounting Standards (AASB Standards) orAustralian Accounting Standards (AAS Standards). The fact that anentity has not provided interim financial reports during a particularannual reporting period or has provided interim financial reportsthat do not comply with this Standard does not, of itself, mean thatits annual financial report does not conform with AASB Standardsor AAS Standards.

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2 Operative Date2.1 This Standard applies to interim reporting periods beginning on

or after 1 July 2001.

2.2 This Standard may be applied to interim reporting periodsbeginning before 1 July 2001. An entity that is required toprepare half-year financial reports in accordance withPart 2M.3 of the Corporations Law may apply this Standard tointerim reporting periods beginning before 1 July 2001, where anelection has been made in accordance with subsection 334(5) ofthe Corporations Law.

2.3 When applied and operative, this Standard supersedesAccounting Standard AASB 1029 “Half-Year Accounts andConsolidated Accounts” as approved by notice published in theCommonwealth of Australia Gazette No. S436 on 13 December1994.

2.3.1 Notice of this Standard was published in the Commonwealth ofAustralia Gazette on 5 October 2000.

3 Purpose of Standard3.1 The purpose of this Standard is to prescribe:

(a) the minimum content of an interim financial report; and

(b) the criteria for recognising and bases for measuringassets, liabilities, equity, revenues and expenses in interimfinancial reports.

3.1.1 Timely and reliable interim financial reporting improves the abilityof users to understand an entity’s capacity to generate profits oroperating surpluses and cash flows and its financial condition andliquidity.

3.1.2 The interim financial report is intended to provide an update on theannual financial report prepared for the most recent annualreporting period. Accordingly, it focuses on the effects oftransactions, events and circumstances since that report and, exceptfor comparatives, need not duplicate information previouslyreported.

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4 Materiality4.1 In recognising, measuring, classifying or disclosing an item for

interim financial reporting purposes, materiality must be assessedin relation to the interim period financial information.

4.1.1 In deciding whether an item is material, its nature and amountusually need to be evaluated together. Accounting StandardAASB 1031 and Australian Accounting Standard AAS 5“Materiality” provide guidance on the role of materiality in makingjudgements in the preparation and presentation of financial reports.

4.1.2 The recognition, measurement, classification and disclosuredecisions for interim financial reporting purposes are based oninterim period information. The materiality of an item is assessed inrelation to the current interim period information or annualreporting-period-to-date information as appropriate. Thus, forexample, the materiality of extraordinary items or specific revenuesand expenses requiring separate disclosure, and changes inaccounting policies or estimates is assessed with respect to relatedinterim period information. This ensures that an interim financialreport includes information that is relevant to understanding anentity’s financial position as at the end of the interim period and itsfinancial performance during the interim period.

5 Content of an Interim Financial Report5.1 An interim financial report must include, as a minimum:

(a) a condensed statement of financial performance;

(b) a condensed statement of financial position;

(c) a condensed statement of cash flows; and

(d) other disclosures required by paragraphs 7.1 to 7.5 ofthis Standard

in lieu of the requirements in Accounting Standards (AASBStandards) or Australian Accounting Standards (AASStandards) that would otherwise apply.

5.1.1 In the interest of timeliness and cost considerations and to reducerepetition of information reported in the most recent annual financialreport, an entity may elect to provide less information for an interim

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period compared with an annual reporting period. Paragraph 5.1identifies the minimum content of an interim financial report ascomprising condensed financial statements (refer to paragraph 5.2)and specific disclosures. It is important to distinguish condensedfinancial statements prepared under this Standard from other formsof presenting and disclosing information under AASB Standards orAAS Standards. An annual financial report has comprehensivefinancial information including annual financial statements andnotes in the financial report, in accordance with AASB Standards orAAS Standards. A concise financial report for an annual reportingperiod prepared under Accounting Standard AASB 1039 “ConciseFinancial Reports”, has less than comprehensive financialinformation, but includes annual financial statements and is requiredto note that members can request a copy of the annual financialreport.

5.1.2 AASB Standards and AAS Standards apply to general purposefinancial reports and financial reports that are held out to be generalpurpose financial reports. Section 6 of this Standard requires therecognition and measurement requirements in other AASBStandards or AAS Standards to be applied in interim financialreports. Paragraph 5.1 of this Standard allows the interim financialreport to comprise condensed financial statements and specificdisclosures rather than the financial statements and disclosures thatwould otherwise be required if the entity were to apply AASBStandards or AAS Standards. For example, in the absence ofparagraph 5.1, Australian Accounting Standards AAS 25 “FinancialReporting by Superannuation Plans”, AAS 27 “Financial Reportingby Local Governments”, AAS 29 “Financial Reporting byGovernment Departments” and AAS 31 “Financial Reporting byGovernments” would entail the preparation and presentation ofinterim financial reports under the more onerous requirements ofthese Standards. This is because these standards apply to reportingperiods which could be annual reporting periods or interimreporting periods.

5.1.3 Typically, the management or governing body of an entitynominates an annual reporting date for the entity. This date definesthe beginning and end of the annual reporting period. Financialreports are prepared for the first annual reporting period (whichmay be more or less than 12 months) of the entity and eachsubsequent annual reporting period in accordance with other AASBStandards or AAS Standards. Where the annual reporting date ischanged, financial reports are prepared for the first new annualreporting period (which may be more or less than 12 months) andeach subsequent annual reporting period in accordance with otherAASB Standards or AAS Standards. Financial reports prepared for

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a period that is shorter than the annual reporting period, regardlessof the length of the annual reporting period, are interim financialreports and subject to this Standard.

Financial Statements Included in Interim FinancialReports

5.2 If the entity includes condensed financial statements in its interimfinancial report:

(a) the condensed statement of financial position and thecondensed statement of cash flows must include, as aminimum, each of the headings and subtotals that werereflected in the statement of financial position and thestatement of cash flows included in the entity’s mostrecent annual financial report, or, where the interimfinancial report is prepared during the first annualreporting period of the entity, to be reflected in thestatement of financial position and the statement of cashflows to be included in the next annual financial report;

(b) the condensed statement of financial performance mustinclude, where applicable and as a minimum, thefollowing items:

(i) profit or loss/result from ordinary activitiesbefore income tax expense (income taxrevenue);

(ii) profit or loss/result from ordinary activitiesafter related income tax expense (income taxrevenue);

(iii) profit or loss from extraordinary items afterrelated income tax expense (income taxrevenue);

(iv) net profit or loss/result;

(v) net profit or loss/result attributable to membersof the parent entity;

(vi) total revenues, expenses and valuationadjustments attributable to members of theparent entity and recognised directly in equity;and

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(vii) total changes in equity other than thoseresulting from transactions with owners asowners; and

(c) a line item must be included on the face of a financialstatement if its significance in the overall context of theentity has changed since the most recent annualfinancial report and its omission would make theinterim financial statement included in the interimfinancial report misleading.

5.2.1 The recognition and measurement guidance in this Standard appliesto all interim financial statements regardless of the extent to whichthose financial statements are condensed.

5.2.2 Accounting Standards and Australian Accounting StandardsAASB 1018 and AAS 1 “Statement of Financial Performance”,AASB 1026 and AAS 28 “Statement of Cash Flows”, AASB 1040and AAS 36 “Statement of Financial Position”, and AASB 1034 andAAS 37 “Financial Report Presentation and Disclosures” provideguidance on the structure of the financial statements and includeappendices that provide further guidance on line items, headings andsubtotals included on the face of the financial statements.

5.2.3 Materiality in the context of interim financial reporting (seeparagraph 4.1.2) is the criterion for the inclusion on the face of aninterim financial statement of a separate line item on the basis of itschanged significance in the overall context of the entity since themost recent annual financial report. Accordingly, a line item wouldwarrant separate disclosure if its omission would mislead the usersof the interim financial report in making economic decisions.

5.2.4 This Standard does not prohibit or discourage the entity fromincluding more than the minimum line items, headings and subtotalsin its condensed financial statements or more than the specificdisclosures required in this Standard in its interim financial report.

5.3 Where the entity’s interim financial report includes a full set offinancial statements and notes of the type normally included inan annual financial report, the form and content of thosefinancial statements and notes must conform to the requirementsof this Standard and:

(a) other AASB Standards, as if any reference in thoseStandards to “financial year” or “annual reportingperiod” includes a reference to “interim reporting

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period” and despite the applicability of Standardscurrently in force; or

(b) AAS Standards, but only if they are applicable.

5.3.1 As noted in paragraphs 5.1.1 and 5.2.4, this Standard prescribes theminimum content of an interim financial report but the entity mayinclude more than the minimum line items, headings and subtotals incondensed financial statements or specific disclosures required bythis Standard in the interim financial report. However, if the entitychooses to include in its interim financial report a full set offinancial statements and notes of the type normally included in anannual financial report, it includes all of the disclosures required bythis Standard (see paragraphs 7.1 to 7.5) as well as those required byother AASB Standards or AAS Standards.

Earnings per Share

5.4 Basic and diluted earnings per share for the half-year must bepresented on the face of the statement of financial performanceincluded in the half-year financial report calculated inaccordance with Accounting Standard AASB 1027 “Earningsper Share”.

5.4.1 AASB 1027 applies to listed reporting entities and reporting entitiesthat have shares on issue and are in the process of listing.

6 Recognition and Measurement

Same Accounting Policies as Applied in AnnualFinancial Reports

6.1 The entity must apply:

(a) the same accounting policies in its interim financialreport as were applied in its most recent annualfinancial report; or

(b) the accounting policies to be applied for the next annualfinancial report, where accounting policy changes aremade after the most recent annual reporting date or theinterim financial report is prepared during the firstannual reporting period of the entity.

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6.1.1 Requiring that the entity apply the same accounting policies in itsinterim financial report as in its most recent annual financial reportor in its next annual financial report means that interim periodmeasurements are made as if each interim period is an independentreporting period and is consistent with treating each interim periodas a discrete reporting period. Treating the interim period as adiscrete reporting period ensures that the results for an interimperiod reflect the economic activity of that period. The interimfinancial report may include explanations in relation to theconsequences of treating the interim period as a discrete periodwhere it is likely that such explanations would enhance users’understanding of the interim financial report.

6.1.2 The criteria for recognising and bases for measuring assets,liabilities, equity, revenues and expenses in interim financialstatements are the same as for annual financial statements. Inrelation to the statement of financial performance, it is necessary toapply the criteria and bases for recognising and measuring revenuesand expenses that are set out in relevant AASB Standards or AASStandards, for example Accounting Standard AASB 1021 andAustralian Accounting Standard AAS 4 “Depreciation”. Similarly,in relation to the statement of financial position, it is necessary toapply the criteria and bases for recognising and measuring assets,liabilities and equity that are set out in relevant AASB Standards orAAS Standards, for example Accounting Standard AASB 1015 andAustralian Accounting Standard AAS 21 “Acquisitions of Assets”.Further examples are:

(a) the criteria for recognising and bases for measuringexpenses resulting from inventory write-downs andrestructurings, or impairment losses in an interim periodare the same as those that an entity would follow if itprepared only annual financial reports;

(b) a cost that does not meet the definition of an asset at theend of an interim period is not recognised as an asset in thestatement of financial position on the basis that it may meetthat definition by the end of the annual reporting period;

(c) a cost that does not meet the definition of an asset at theend of an interim period is not recognised as an asset in thestatement of financial position in order to smooth earningsover the interim periods within an annual reporting period;

(d) income tax expense is recognised in each interim periodusing the estimated annual effective income tax rateexpected for the full annual reporting period; and

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(e) a liability at an interim reporting date must represent anexisting obligation at that date, just as it must at an annualreporting date.

Annually Determined Items

6.1.3 The requirements of paragraph 6.1 are consistent with treating eachinterim period as a discrete period. This entails the application ofthe same recognition criteria and measurement bases in both annualand interim financial reports. For example, the treatment of annualprofit related bonuses as at an interim reporting date would be thesame as the treatment of bonuses determined over, say, 3 years as atthe end of years 1 and 2. For certain items, it is necessary to accruerevenues or expenses using an estimated annual effective rate. Thisreflects the fact that, regardless of the length of the reporting period,there are likely to be some items of revenue or expense that need tobe determined as at the reporting date despite the fact that theunderlying transaction or other event is incomplete. For instance, incalculating interim income tax expense it is necessary to estimatethe effective rate at which an item that has a tax effect will accrueduring the annual reporting period in order to determine theamounts to be recognised in interim financial reports. Consistentwith paragraph 6.4 of this Standard, the estimated annual effectiverate is re-estimated at each interim reporting date on an annualreporting period-to-date basis. Paragraph 7.5(b) requires disclosureof the revision of an estimate if the revision has a material effect inthe current interim period. Appendix 2 provides additional guidanceand discusses some examples of annually determined itemsincluding income tax.

6.1.4 As noted in paragraphs 6.1.2(d) and 6.1.3, income tax expense isrecognised in each interim period using an estimated annualeffective income tax rate. The annual effective income tax rate isthe effective rate of tax expected to be applicable to the annualreporting period’s net profit or loss/result. It reflects the effect ofitems such as a progressive tax rate structure, changes in income taxrates1 expected to occur part way through the annual reportingperiod, anticipated tax credits that are contingent on achieving acertain level of annual capital expenditure or exports and certainannual non-deductible items. Generally, items that are not directlyattributable to a specific interim period are included in thecalculation of the annual effective income tax rate. For example, atax credit that is contingent on a certain level of annual capitalexpenditure, and achievement of that level of expenditure is

1 Accounting Standard AASB 1020 and Australian Accounting Standard AAS 3

“Income Taxes” provide guidance on accounting for changes in tax rates.

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probable, is included in the calculation of the annual effectiveincome tax rate. However, a tax credit directly related to aparticular asset is included in the tax calculations of the interimperiod in which the expenditure on that asset is incurred. Similarly,to the extent practicable, special tax rates applicable to particularcategories of revenue are not included in the calculation of theannual effective income tax rate, rather they affect the taxcalculation for the period in which the revenue is recognised.

6.1.5 The estimated annual effective income tax rate is calculated as theratio of income tax expense or revenue (calculated at the statutoryrate) relating to adjusted estimated net profit or loss/result for theannual reporting period (adjusted for items of an annual nature suchas certain tax credits and certain non-deductible items) to theestimated net profit or loss/result for the annual reporting period.The annual effective income tax rate is then applied to the year-to-date net profit or loss/result at the end of each interim period tocalculate the annual reporting period-to-date income tax expense(revenue). The interim period income tax expense (revenue) iscalculated as the difference between the amount so calculated andthe amount reported for the previous interim period-to-date of theannual reporting period. The estimated annual effective income taxrate may be approximated in particular circumstances by thestatutory rate, for example when the effect of the requiredadjustments is immaterial, or when the annual net profit orloss/result is expected to be zero. Appendix 2 provides additionalguidance and contains examples of interim income tax calculationsin different circumstances using an annual effective income tax rate.

Revenues Received Seasonally, Irregularly orOccasionally

6.1.6 Revenues that are received seasonally, irregularly or occasionallywithin an annual reporting period are not recognised as liabilities atan interim reporting date if the same treatment would not beappropriate in similar circumstances at the entity’s annual reportingdate.

6.1.7 Examples of revenues that may be received seasonally, irregularlyor occasionally include dividend revenue, royalties and governmentgrants. Additionally, some entities consistently earn more revenuesin certain interim periods of an annual reporting period than inother interim periods, for example seasonal revenues of retailers.Such revenues are recognised when they occur.

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Costs Incurred Unevenly During the AnnualReporting Period

6.1.8 Costs incurred unevenly during the entity’s annual reporting periodare recognised in interim financial reports in accordance with thesame accounting policies as applied in the entity’s annual financialreports. Accordingly, such costs are not recognised as an asset at aninterim reporting date if the same treatment would not beappropriate in similar circumstances at the annual reporting date.

Changes in Accounting Policies

6.2 Unless the transitional provisions in an AASB Standard or anAAS Standard or an Urgent Issues Group Consensus View thatis applied for the first time require otherwise, a change inaccounting policy must be reflected by restating the financialstatements of prior interim periods of the current annualreporting period. Comparable interim periods of prior annualreporting periods must not be restated.

6.2.1 Where the entity prepares an interim financial report for the firsthalf-year of an annual reporting period and then an annual financialreport, there is no prior interim period of the current annualreporting period at the end of the first half-year nor at the end of theannual reporting period. However, where the entity reports morefrequently than half-yearly, financial statements of prior interimperiods of the current annual reporting period would be restated toreflect changes in accounting policies. For example, if an entityreports quarterly and changes an accounting policy in the thirdquarter, the financial statements for the first half-year and for thefirst and second quarters are restated to reflect the new accountingpolicy.

6.2.2 Paragraph 6.2 ensures that a single accounting policy is applied to aparticular class of transactions throughout an entire annual reportingperiod. Under Accounting Standard AASB 1001 and AustralianAccounting Standard AAS 6 “Accounting Policies”, when an entitychanges an accounting policy other than in order to comply with anAASB Standard or an AAS Standard, or an Urgent Issues GroupConsensus View, the cumulative financial effect of the change inaccounting policy up to the end of the preceding annual reportingperiod is recognised as revenue or expense in the statement offinancial performance in the annual reporting period in which thechange is made, unless it is not practicable to determine thecumulative financial effect, in which case the new accounting policymust be applied from the beginning of the current annual reporting

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period. The effect of the requirement in paragraph 6.2 is to ensurethat, within the current annual reporting period, any change inaccounting policy is applied as from the beginning of the annualreporting period.

6.2.3 If accounting policy changes are reflected in some but not all of theinterim periods within the annual reporting period, two differingaccounting policies would be applied to a particular class oftransactions within a single annual reporting period. The resultwould be interim allocation difficulties, obscured operating results,and impediments to the analysis and understanding of interim periodinformation.

Use of Estimates

6.3 The measurement procedures followed in an interim financialreport must result in information that is relevant and reliable.

6.3.1 Whilst measurements in both annual and interim financial reportsare based on estimates, the preparation of interim financial reportsgenerally requires a greater use of estimation methods than annualfinancial reports.

Revisions of Estimates

6.4 When preparing the interim financial report for an interim periodthat is an annual reporting period-to-date, revisions of estimatesmust be reflected in the measurements of revenues and expenseson an annual reporting period-to-date basis.

6.4.1 The requirement in paragraph 6.4 means that the frequency of theentity’s reporting (annual, half-yearly, quarterly or monthly) doesnot affect the measurement of its annual revenues and expensesdespite the fact that annual reporting period-to-date measurementsmay involve revisions of estimates of amounts reported in priorinterim periods of the current annual reporting period. Forexample, if expenses resulting from inventory write-downs andrestructurings, or impairment losses are measured in one interimperiod and the estimate is reduced in a subsequent interim period ofthat annual reporting period, the original estimate is revised in thesubsequent interim period by reversal of the previously recognisedamount. The subsequent interim financial report for the annualreporting period-to-date recognises the net amount as an expense forthat period, rather than an expense reflecting the original estimateand a revenue reflecting the reversed conditions. The interimfinancial report for the current interim period recognises the

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revenue resulting from the reversed conditions. Similarly, amountsaccrued for income tax expense in one interim period may have tobe adjusted in a subsequent interim period of that annual reportingperiod if the estimate of the annual effective income tax rate isrevised.

6.4.2 In measuring the assets, liabilities, equity, revenues, expenses andcash flows reported in its financial statements, an entity that reportsonly annually is able to take into account information that becomesavailable throughout the annual reporting period. Its measurementsare, in effect, on an annual reporting period-to-date basis. An entitythat reports half-yearly uses information available by mid-year orshortly thereafter in making the measurements in its financialstatements for the first half-year and information available by year-end or shortly thereafter for the twelve-month period. The twelve-month measurements will reflect possible revisions of estimates ofamounts reported for the first half-year. An entity that reports morefrequently than half-yearly measures revenues and expenses on anannual reporting period-to-date basis for each interim period usinginformation available when each set of financial statements is beingprepared. Amounts of revenues and expenses reported in the currentinterim period will reflect any revisions of estimates of amountsreported in prior interim periods of the annual reporting period.Whether an entity reports half-yearly, or more frequently, estimatedamounts reported in prior interim periods are not retrospectivelyadjusted. However, paragraphs 7.5(b) and 7.8 require the nature andamount of any significant revisions of estimates to be disclosed.

Errors

6.4.3 In accordance with Accounting Standard AASB 1018 andAustralian Accounting Standard AAS 1 “Statement of FinancialPerformance”, and Accounting Standard AASB 1040 and AustralianAccounting Standard AAS 36 “Statement of Financial Position”,errors are corrected in the interim period in which they arediscovered. In the case of fundamental errors any comparativeinformation which contains such an error is revised as required bythose Standards.

Applying the Recognition Criteria and MeasurementBases

6.4.4 Appendix 2 provides examples of applying the general recognitioncriteria and measurement bases set out in paragraphs 6.1 to 6.4.3.

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7 Disclosures7.1 The interim financial report must prominently display an explicit

statement that the interim financial report is to be read inconjunction with the most recent annual financial report.

7.1.1 It is important that the reader of an interim financial report is awarethat the report is to be read in the context of the most recent annualfinancial report, because the interim financial report focuses on theeffects of transactions, events and circumstances that have occurredsince that report.

7.2 Where the entity includes condensed financial statements in itsinterim financial report, those condensed statements must beclearly labelled as such.

7.3 Where the interim financial report does not include notes of thetype normally included in an annual financial report, that factmust be disclosed in the notes in the interim financial report.

7.3.1 Where the entity includes financial statements and notes in itsinterim financial report that are not of the type normally included inan annual financial report, paragraphs 7.2 and 7.3 require thedisclosure of that fact. This is to avoid any misunderstanding on thepart of users that the interim financial report contains all theinformation that is usually included in a financial report inaccordance with AASB Standards or AAS Standards.

7.4 Except for items (c) and (d), which need only be disclosed ifthere is a change from the most recent annual financial report,the following information must be included, in summarisedform, in the notes in the interim financial report, if not disclosedelsewhere in the interim financial report:

(a) the interim reporting date of, or the interim reportingperiod covered by, each interim financial statement,whichever is appropriate;

(b) a statement that the interim financial report is a generalpurpose financial report;

(c) a statement as to whether the financial report has beenprepared in accordance with:

(i) AASB Standards or AAS Standards;

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(ii) other authoritative pronouncements of theAustralian Accounting Standards Board and/orthe former Public Sector Accounting StandardsBoard; and

(iii) Urgent Issues Group Consensus Views;

(d) a description of the measurement basis or bases used inpreparing the interim financial report;

(e) a statement that the same accounting policies arefollowed in the interim financial report as those appliedin the most recent annual financial report or, if thosepolicies have been changed, a description of the natureand effect of the change;

(f) if different estimation methods are used in the interimfinancial report as compared with the most recentannual financial report, a description of the nature ofthose methods;

(g) where the interim operations are seasonal or irregular,explanatory comments about the seasonality orirregularity of those operations; and

(h) material events subsequent to the end of the interimperiod that have not been recognised in the interimfinancial statements and an indication, where possible,of the financial effect of each event.

7.4.1 When the financial information for interim periods is affected byseasonal or irregular factors, explanatory comments about thosefactors are useful to users of financial reports. Seasonality ofoperations refers to the substantial variation between levels ofrevenues or profits in certain interim periods and other interimperiods that tend to recur each annual reporting period. Irregularityin the context of interim operations refers to the predictable orunpredictable volatility or variability from interim period to interimperiod of revenues or profits. Narrative commentary on the natureof seasonal or irregular activity and information on the entity’srevenues or profits trend or liquidity showing related turning pointshelp the assessment of the impact of seasonal or irregular factors oninterim results.

7.5 The following information must be included, in summarisedform, in the notes in the interim financial report on an annualreporting period-to-date basis and, where appropriate, on a

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current interim period basis, if not disclosed elsewhere in theinterim financial report:

(a) the nature and amount of items affecting assets,liabilities, equity, net profit or loss/result, or cash flowswhich are material to an understanding of the interimperiod, including:

(i) when the item is a revenue or an expense fromordinary activities and is of such a size, natureor incidence that its disclosure is relevant inexplaining the financial performance of theentity for the interim period; or

(ii) when the item is classified as an extraordinaryitem, in which case separate disclosure of thenature of the extraordinary item, its amountbefore related income tax expense (income taxrevenue), and the related amount of income taxexpense (income tax revenue) is required;

(b) the nature and amount of revisions in estimates ofamounts reported in prior interim periods of the currentannual reporting period or revisions in estimates ofamounts reported in prior annual reporting periods, ifthose revisions have a material effect in the currentinterim period;

(c) issuances, repurchases, and repayments of debtsecurities and equity securities in accordance withAccounting Standard AASB 1026 and AustralianAccounting Standard AAS 28 “Statement of CashFlows”;

(d) for each class of shares included in equity, the amount inaggregate or per share of dividends that were eitherrecognised as a liability in the interim period or paidduring the interim period without previously beingrecognised as a liability;

(e) segment revenues and segment result for businesssegments or geographical segments, whichever is theentity’s primary format of segment reporting, ifAccounting Standard AASB 1005 “Segment Reporting”requires the entity to disclose segment information in itsannual financial report;

AASB 1029 23

(f) changes in the composition of the entity during theannual reporting period-to-date, including acquisitionor disposal of subsidiaries and restructurings;

(g) a description of any significant activities or eventsrelating to a discontinuing operation for which the initialdisclosure event has occurred, including any significantchanges since the last annual reporting date in theamount or timing of cash flows relating to the assets tobe disposed of and liabilities to be settled; and

(h) changes in contingent liabilities or contingent assetssince the last annual reporting date or a statement thatthere have been no changes since the last annualreporting date.

7.5.1 The disclosures required by paragraphs 7.1 to 7.5 provide a contextwithin which the interim financial report can be read by users. Auser of the entity’s interim financial report is presumed to haveaccess to the entity’s most recent annual financial report. Therefore,it is unnecessary for the notes in an interim financial report toprovide relatively insignificant updates to the information that wasalready reported in the notes in the most recent annual financialreport. At an interim reporting date, explanations of events andtransactions that are significant to an understanding of the changesin financial position and performance of the entity since the lastannual reporting date are more useful.

7.5.2 An item is disclosed in the interim financial report in accordancewith paragraph 7.5(a) where that item is either non-recurring or, ifrecurring, has changed in significance since the most recent annualfinancial report. Examples of items that are required byparagraph 7.5(a) to be separately disclosed are set out below.Individual AASB Standards or AAS Standards provide guidanceregarding disclosures for many of these items:

(a) a write-down of inventories to net realisable value and thereversal of such a write-down;

(b) recognition of a loss from the impairment of property, plantand equipment, intangible assets, or other assets, and thereversal of such an impairment loss;

(c) the reversal of any provisions for the costs of restructuring;

(d) acquisitions and disposals of items of property, plant andequipment;

AASB 1029 24

(e) commitments for the purchase of property, plant, andequipment;

(f) litigation settlements;

(g) any debt default or any breach of a debt covenant that hasnot been corrected subsequently; and

(h) related party transactions.

7.5.3 The disclosures required by paragraph 7.5(c) may be made on a netbasis where that is permitted under Accounting StandardAASB 1026 and Australian Accounting Standard AAS 28“Statement of Cash Flows”.

7.5.4 The disclosures required by paragraph 7.5(e) are made inaccordance with Accounting Standard AASB 1005 “SegmentReporting”.

7.6 Voluntary disclosures in addition to the minimum required byparagraphs 7.1 to 7.5, if dealt with by other applicable AASBStandards or AAS Standards, must be made in a mannerconsistent with those Standards.

7.6.1 Other AASB Standards or AAS Standards specify disclosures thatmust be made in the annual financial report. The disclosuresrequired by those Standards are not required if the entity’s interimfinancial report comprises only condensed financial statements andthe disclosures required by paragraphs 7.1 to 7.5. Where the entityvoluntarily includes disclosures in the interim financial report inaddition to the minimum required by paragraphs 7.1 to 7.5 that aredealt with by other AASB Standards or AAS Standards, it makes theadditional disclosures in a manner consistent with those Standards.

AASB 1029 25

Disclosure in Annual Financial Reports

7.7 Where there is a change in an accounting policy during the finalcurrent interim period of the annual reporting period but aseparate interim financial report is not published for that finalcurrent interim period, the nature of the change in accountingpolicy and the financial effect of the change on prior interimfinancial reports of the current annual reporting period must bedisclosed in the notes in the annual financial report for thatannual reporting period.

7.8 If an estimate of an amount reported in a prior interim period ofthe annual reporting period is revised significantly during thefinal current interim period of that annual reporting period but aseparate interim financial report is not published for that finalcurrent interim period, the nature and amount of the revision inestimate must be disclosed in the notes in the annual financialreport for that annual reporting period.

7.8.1 Paragraph 6.2 prescribes the accounting for, and paragraph 7.4(e)prescribes disclosures of, a change in accounting policy in aninterim period. In the absence of the requirement in paragraph 7.7,the financial effect of the change in accounting policy in the finalcurrent interim period on previous interim financial reports of theannual reporting period may not be reported to users. An entitychanging an accounting policy in the final current interim periodaccounted for in the annual financial report in accordance withAccounting Standard AASB 1001 and Australian AccountingStandard AAS 6 “Accounting Policies”, would not necessarilydisclose the financial effect of the change on previous interimperiods. Accordingly, when there is a change in an accountingpolicy during the final current interim period of the annual reportingperiod and a separate financial report is not published for that finalcurrent interim period, paragraph 7.7 requires the nature of thechange in accounting policy, and the financial effect of the changeon the previous interim financial reports of the annual reportingperiod to be disclosed in notes in the annual financial report for thatannual reporting period. If the entity does not prepare interimfinancial reports other than for the first half-year, the requirementsof paragraph 7.7 apply where there is a change in accounting policybetween the first half-year reporting date and the annual reportingdate.

7.8.2 Accounting Standard AASB 1018 and Australian AccountingStandard AAS 1 “Statement of Financial Performance” requiredisclosure of the nature and amount of a revision of an accountingestimate which affects the reported financial performance or

AASB 1029 26

financial position of the current annual reporting period, or isexpected to have an effect on the financial performance or financialposition of subsequent annual reporting periods. Paragraph 7.5(b)of this Standard requires similar disclosure in an interim financialreport. Examples of revisions of estimates in the final currentinterim period that are required to be disclosed by paragraph 7.8 areestimates relating to inventory write-downs and restructuringexpenses, or impairment losses that were reported in an earlierinterim period of the annual reporting period. Where the entitydoes not prepare interim financial reports other than for the firsthalf-year, the requirements of paragraph 7.8 apply if there is asignificant revision of an estimate of amount reported in the firsthalf-year financial statements between the half-year reporting dateand the annual reporting date. The disclosure required byparagraph 7.8 in respect of revisions of estimates is consistent withAASB 1018 and AAS 1 requirements.

8 Periods for which Interim FinancialStatements and Notes are Presented

8.1 Subject to paragraph 8.2, interim financial reports must includeinterim financial statements and other disclosures for periods asfollows:

(a) statement of financial position as at the end of thecurrent interim period and a comparative statement offinancial position as at the end of the immediatelypreceding annual reporting period;

(b) statements of financial performance for the currentinterim period and cumulatively for the annualreporting period-to-date, with comparative statementsof financial performance for the comparable interimperiods (current and annual reporting period-to-date) ofthe immediately preceding annual reporting period; and

(c) statement of cash flows cumulatively for the currentannual reporting period-to-date, with a comparativestatement of cash flows for the comparable annualreporting period-to-date of the immediately precedingannual reporting period.

8.1.1 Where the entity’s operations are highly seasonal, financialinformation for the twelve months ending on the interim reportingdate and comparative information for the prior twelve-month period

AASB 1029 27

may be useful. Accordingly, entities whose business is highlyseasonal are encouraged to report such information in addition to theinformation required by paragraph 8.1.

8.1.2 Paragraph 8.1(c) sets out the minimum presentation requirements inrespect of the entity’s cash flows. It is expected that cash flowinformation for a current interim period would provide usefulinformation. Accordingly, this Standard encourages the presentationof a statement of cash flows for the current interim period and thecomparable interim period of the immediately preceding annualreporting period.

8.1.3 Where the entity does not prepare interim financial reports otherthan for the first half-year, the first half-year and the annualreporting period-to-date interim period coincide. Accordingly, incontrast with an entity that prepares interim financial reports morefrequently than half yearly, for example quarterly, there would bereduced presentation requirements under paragraph 8.1.

8.1.4 Comparative interim periods (current or annual reporting period-to-date) refer to the corresponding calendar periods within theimmediately preceding annual reporting period. In certaincircumstances, such as when the current or immediately precedingannual reporting period differs from twelve months (seeparagraph 9.1.1), the current or annual reporting period-to-dateinterim periods may differ in length from, or may not directlycorrespond with, their comparative counterpart. Disclosure of thelength of the interim period is made in accordance withparagraph 7.4 (a).

8.2 Comparative information need not be provided underparagraph 8.1 where this Standard is being applied for the firsttime and:

(a) the Standard superseded by this Standard applied tothe entity in the preceding corresponding interim periodand the superseded Standard did not require disclosureof information which corresponds to the informationrequired to be disclosed by this Standard; or

(b) either the Standard superseded by this Standard or thisStandard did not apply to the entity in the precedingcorresponding interim period.

8.2.1 Where an entity applied the Standard superseded by this Standard inthe preceding corresponding interim period, disclosure ofcomparative information is required in relation to any information

AASB 1029 28

required to be disclosed by the superseded Standard whichcorresponds to the information required to be disclosed by thisStandard.

8.2.2 In relation to the preparation of a consolidated interim financialreport of an economic entity, comparative information is notrequired for the first interim period after an entity becomes a parententity.

8.2.3 Disclosure of comparative information is encouraged where, inaccordance with paragraph 8.2, disclosure of comparativeinformation is not required.

8.2.4 Appendix 1 illustrates the periods required to be presented by anentity that reports half-yearly and an entity that reports quarterly.

9 Definitions9.1 The following terms are used in this Standard with the meanings

specified:

accounting policies means the specific accounting principles,bases or rules adopted in preparing and presenting thefinancial report

annual reporting period means the financial year or similarperiod to which an annual financial report relates

assets means future economic benefits controlled by the entity asa result of past transactions or other past events

business segment means a distinguishable component of an entityand that component is engaged in providing an individualproduct or service or a group of related products or servicesand is subject to risks and returns that are different fromthose of other distinguishable components of the entity.Factors to be considered in determining whether productsand services are related include:

(a) the nature of the products or services;

(b) the nature of the production processes;

(c) the type or class of customer for the products orservices;

AASB 1029 29

(d) the methods used to distribute the products orprovide the services; and

(e) if applicable, the nature of the regulatoryenvironment, for example, banking, insurance, orpublic utilities

discontinuing operation means a major component of an entity:

(a) that the entity’s management or governing body hasdeveloped a single plan to:

(i) dispose of in its entirety through one ormore transactions; or

(ii) abandon; or

(iii) terminate through a combination of one ormore transactions and abandonment;

(b) that represents a separate major activity orgeographical area of operations; and

(c) that can be separately identified for operationaland financial reporting purposes

economic entity means a group of entities comprising the parententity and each of its subsidiaries

entity means any legal, administrative, or fiduciaryarrangement, organisational structure or other party(including a person) having the capacity to deploy scarceresources in order to achieve objectives

equity means the residual interest in the assets of the entity afterdeduction of its liabilities

expenses means consumptions or losses of future economicbenefits in the form of reductions in assets or increases inliabilities of the entity, other than those relating todistributions to owners, that result in a decrease in equityduring the reporting period

extraordinary items means items of revenue and expense that areattributable to transactions or other events of a type thatare outside the ordinary activities of the entity and are not ofa recurring nature

AASB 1029 30

financial statements means statement of financial performance,statement of financial position and statement of cash flows

fundamental errors means material errors discovered in thecurrent reporting period such that the financial report ofone or more prior reporting periods can not now beconsidered to have been reliable at the dates of their issue

general purpose financial report means a financial reportintended to meet the information needs common to userswho are unable to command the preparation of reportstailored so as to satisfy, specifically, all of their informationneeds

geographical segment means a distinguishable component of anentity and that component is engaged in providing productsor services within a particular economic environment and issubject to risks and returns that are different from those ofcomponents operating in other geographical areas. Factorsto be considered in identifying geographical segmentsinclude:

(a) similarity of economic and political conditions;

(b) relationships between operations in differentgeographical areas;

(c) proximity of operations;

(d) special risks associated with operations in aparticular area;

(e) exchange control regulations; and

(f) the underlying currency risks

initial disclosure event means the occurrence of one of thefollowing, whichever occurs earlier:

(a) the entity has entered into a binding sale agreementfor all of the assets attributable to the discontinuingoperation; or

(b) the entity’s management or governing body hasboth:

AASB 1029 31

(i) approved a detailed, formal plan for thediscontinuance; and

(ii) made an announcement of the plan,

such that it is highly unlikely that the entity will withdrawfrom the discontinuance

interim financial report means a financial report for an interimreporting period

interim reporting period (interim period) means a reportingperiod within an annual reporting period that is shorter thanthat annual reporting period

liabilities means the future sacrifices of economic benefits thatthe entity is presently obliged to make to other entities as aresult of past transactions or other past events

materiality means, in relation to information, that informationwhich if omitted, misstated or not disclosed has the potentialto adversely affect decisions about the allocation of scarceresources made by users of the financial report or thedischarge of accountability by the management orgoverning body of the entity

net profit or loss/result means

(a) in the case of an entity that is not an economic entity,profit or loss/result after income tax expense(income tax revenue) from ordinary activities andextraordinary items; and

(b) in the case of an entity that is an economic entity,profit or loss/result after income tax expense(income tax revenue) from ordinary activities andextraordinary items, before adjustment for thatportion that can be attributed to outside equityinterest

ordinary activities means activities that are undertaken by anentity as part of its business or to meet its objectives andrelated activities in which the entity engages in furtheranceof, incidental to, or arising from activities undertaken tomeet its objectives

parent entity means an entity which controls another entity

AASB 1029 32

recognised means reported on, or incorporated in amountsreported on, the face of the statement of financialperformance or the statement of financial position (whetheror not further disclosure of the item is made in notes)

relevance means that quality of financial information whichexists when that information influences decisions by usersabout the allocation of scarce resources by:

(a) helping them form predictions about the outcomesof past, present or future events; or

(b) confirming or correcting their past evaluations;

and which enables users to assess the discharge ofaccountability by the management or governing body of theentity

reliability means that quality of financial information whichexists when that information can be depended upon torepresent faithfully, and without bias or undue error, thetransactions or other events that either it purports torepresent or could reasonably be expected to represent

reporting date means the end of the reporting period to whichthe financial report relates

reporting entity means an entity (including an economic entity) inrespect of which it is reasonable to expect the existence ofusers dependent on general purpose financial reports forinformation which will be useful to them for making andevaluating decisions about the allocation of scarce resources,and includes but is not limited to the following:

(a) a disclosing entity; and

(b) a company which is not a subsidiary of a holdingcompany incorporated in Australia and which is asubsidiary of a foreign company where that foreigncompany has its securities listed for quotation on astock market or those securities are traded on astock market

revenues means inflows or other enhancements, or savings inoutflows, of future economic benefits in the form ofincreases in assets or reductions in liabilities of the entity,

AASB 1029 33

other than those relating to contributions by owners, thatresult in an increase in equity during the reporting period

segment result is segment revenues less segment expenses.Segment result is determined before any adjustments foroutside equity interest

segment revenues means operating revenues recognised in theentity’s profit (loss)/result from ordinary activities beforeincome tax expense (income tax revenue) resulting from theoperating activities of a segment that are directlyattributable to a segment and the relevant portion of otherrevenues that can be allocated on a reasonable basis to thesegment, whether from sales to external customers or fromtransactions with other segments of the same entity.Segment revenues do not include:

(a) extraordinary items;

(b) interest or dividend income, including interestearned on advances or loans to other segments,unless the segment’s operations are primarily of afinancial nature; and

(c) gains on sales of investments or gains onextinguishment of debt unless the segment’soperations are primarily of a financial nature

subsidiary means an entity which is controlled by a parent entity.

Annual Reporting Period

9.1.1 The definition of annual reporting period refers to financial year orsimilar period and will normally be a twelve-month period. Theannual reporting period will differ from twelve months incircumstances such as:

(a) the entity being established on a date other than a dateexactly twelve months before the reporting date; and

(b) the entity changing its reporting date.

Interim Reporting Period

9.1.2 An interim reporting period is a reporting period shorter than theannual reporting period. In certain circumstances such as when the

AASB 1029 34

annual reporting period differs from twelve months (seeparagraph 9.1.1), an interim reporting period, whether current orannual reporting period-to-date, may differ in length from theequivalent period for the preceding annual reporting period.

Corporations Law Definitions

9.2 In this Standard, the following definitions apply to eachdisclosing entity that is required to prepare half-year financialreports in accordance with Part 2M.3 of the Corporations Law:

company is defined in the Corporations Law

concise financial report is defined in the Corporations Law

disclosing entity is defined in the Corporations Law

financial year is defined in the Corporations Law

holding company is defined in the Corporations Law

half-year is defined in the Corporations Law

statement of financial performance means profit and lossstatement as required by the Corporations Law

statement of financial position means the balance sheet asrequired by the Corporations Law

stock market is defined in the Corporations Law.

Financial Statements

9.2.1 Section 295(2) of the Corporations Law stipulates that the financialstatements for the year constitute (a) a profit and loss statement forthe year, (b) a balance sheet as at the end of the year and (c) astatement of cash flows for the year. The financial statements alsoinclude a consolidated profit and loss statement, balance sheet andstatement of cash flows if required by accounting standards. Thefinancial statements are prepared in accordance with AccountingStandards AASB 1018 “Statement of Financial Performance”,AASB 1026 “Statement of Cash Flows” and AASB 1040“Statement of Financial Position”.

9.2.2 Section 303(2) of the Corporations Law stipulates that the financialstatements for the half-year constitute (a) a profit and loss statement

AASB 1029 35

for the half-year, (b) a balance sheet for the half-year and (c) astatement of cash flows for the half-year. The financial statementsalso include a consolidated profit and loss statement, balance sheetand statement of cash flows if required by accounting standards.The half-year financial statements are prepared according to thisStandard, which requires, as a minimum, a condensed statement offinancial performance, a condensed statement of financial positionand a condensed statement of cash flows for the half-year.Accordingly, half-year financial reports may include financialstatements rather than condensed financial statements.

AASB 1029 36 APPENDIX 1

APPENDICESThe Appendices form part of the commentary and are provided forillustrative purposes only.

APPENDIX 1

ILLUSTRATION OF PERIODS REQUIRED TOBE PRESENTED

This Appendix provides examples to illustrate application of therequirements in paragraph 8.1 to assist in explaining their meaning.

Entity Publishes Interim Financial Reports Half-Yearly

1. The entity’s annual re porting period ends on 31 December. Theentity will present the following financial statements in its half-yearly interim financial report as of 30 June 2002:

Statement of financial position:As at 30 June 2002 31 December 2001

Statement of financial performance:half-year ending 30 June 2002 30 June 2001

Statement of cash flows:half-year ending 30 June 2002 30 June 2001

Entity Publishes Interim Financial Reports Quarterly

2. The entity’s annual reporting period ends on 31 December. Theentity will present the following financial statements in its quarterlyinterim financial report as of 30 June 2002:

Statement of financial position:As at 30 June 2002 31 December 2001

Statement of financial performance:half-year ending 30 June 2002 30 June 2001

quarter ending 30 June 2002 30 June 2001Statement of cash flows:

half-year ending 30 June 2002 30 June 2001


APPENDIX 2

EXAMPLES OF APPLYING THERECOGNITION CRITERIA AND

MEASUREMENT BASESThis Appendix provides examples of applying the general recognition andmeasurement requirements set out in Section 6 of the Standard to assist inexplaining their meaning.

Employer Insurance Contributions1. Employer contributions to government-sponsored insurance funds

(such as workers’ compensation insurance funds) may be assessedon an annual basis. Using the accrual basis of accounting, theemployer’s related expense and any liability or asset is recognised ininterim periods by applying an estimated annual effectivecontribution rate, even though a large portion of the payments maybe made early in the annual reporting period. An example is anemployer insurance contribution that is imposed up to a certainmaximum level of salary per employee. For higher incomeemployees, the maximum salary is reached before the end of theannual reporting period, and the employer makes no furtherpayments through to the end of the annual reporting period for thoseemployees.

Year-End Bonuses2. The nature of year-end bonuses varies widely. Some simply vest

during an employment period. Others are earned based on amonthly, quarterly or annual measure of operating result. They maybe purely discretionary, contractual or based on historical precedent.

3. A bonus is recognised as a liability for interim reportin g purposeswhen, and only when the bonus is a legal or a constructiveobligation for which the entity has no realistic alternative but tosettle the liability, and the amount of the liability is capable of beingmeasured reliably.

4. Assume an entity has a bonus plan which requires it to pay2.6 percent of its net profit for the annual reporting period to itsemployees. The entity’s expected net annual profit for the purpose


of determining bonus entitlements is $3.5m. As the entity isobligated to pay the bonuses on an annual basis, the proportionaterecognition of the bonus expense in the interim financial reports isconsistent with the general approach to its annual determination. Inthis case, for example, a liability of $45,500 [(3.5m × 2.6%) ÷ 2] isrecognised at the end of the second quarter.

Contingent Lease Payments5. Contingent lease payments can be an example of a legal or

constructive obligation that is recognised as a liability at the end ofthe interim period. If a lease provides for contingent paymentsbased on the lessee achieving a certain level of annual sales, anobligation arises in the interim periods of the annual reportingperiod before the required annual level of sales has been achieved, ifthat required level of sales is expected to be achieved and the entity,therefore, has no realistic alternative but to make the future leasepayment.

Measuring Interim Income Tax Expense2

6. Income tax is assessed on an annual basis. As noted inparagraph 6.1.4 of this Standard, the interim per iod income taxexpense is accrued by applying the estimated annual effectiveincome tax rate to the pre-tax profit of the interim period.

7. Assume an entity expects profit before tax of $60,000 in the firstquarter and $30,000 in each of the remaining quarters. All profitsare taxable in one jurisdiction at a 40 per cent rate and the entityexpects a tax credit for the year of $15,000 (see paragraph 14 of thisAppendix). No event having future tax consequences is expected.The annual effective income tax rate is calculated as follows:

2 This section is only concerned with the estimation of interim income tax expense and

does not deal with the determination of deferred tax liabilities including the deferredtax liabilities relating to items directly credited to equity during the interim period.The illustrations are based on the revised Accounting Standard AASB 1020 andAustralian Accounting Standard AAS 3 “Income Taxes”. Where the supersededAASB 1020 or AAS 3 is being applied, the requirements of this Standard would beapplied in a manner consistent with the requirements of the superseded AASB 1020and AAS 3.


Tax at statutory rate of 40% ($150,000 × 40%) $60,000Less: tax offset ($15,000)

Tax expense $ 45,000

Estimated annual effective tax rate ($45,000 ÷ $150,000) 30%

Consistent with paragraph 6.4 of this Standard, the estimated annualeffective income tax rate is applied to the annual reporting period-to-date profit to calculate the annual reporting period-to-date taxexpense. The income tax expense for the current interim period isthe difference between the amount so calculated and the annualreporting period-to-date amount reported for the previous interimperiod. Assuming actual profits match expectations, and the annualreporting period and the tax year coincide (see paragraphs 12 and 13of this Appendix), the tax expense in each quarter is determined asfollows:

1st

Quarter2nd

Quarter3rd

Quarter4th

QuarterAnnual

Profit before tax(current interim period) $60,000 $30,000 $30,000 $30,000 $150,000Profit before tax(annualreporting period-to-date) $60,000 $90,000 $120,000 $150,000Estimatedannual effective tax rate 30% 30% 30% 30%Tax expense(annualreporting period-to-date) $18,000 $27,000 $36,000 $45,000Tax expense (previously recognised) - $18,000 $27,000 $36,000Tax expense(current interim period) $18,000 $9,000 $9,000 $9,000 $45,000


8. Assume an entity reporting quarterly expects to earn $10,000 pre-taxprofit each quarter and operates in a jurisdiction with a tax rate of20 per cent on the first $20,000 of taxable income and 30 per centon all additional amounts. Accordingly, $10,000 of tax is expectedto be payable for the full year on $40,000 of pre-tax profit whichgives an estimated annual effective income tax rate of 25 per cent.Assuming actual profits match expectations, and the annualreporting period and the tax year coincide, the following table showsthe amount of income tax expense that is recognised in each quarter(see paragraph 7 of this Appendix):

1st

Quarter2nd

Quarter3rd

Quarter4th

QuarterAnnual

Taxexpense $2,500 $2,500 $2,500 $2,500 $10,000

9. The statutory tax rate is used as a proxy for the estimated annualeffective income tax rate when the entity’s annual result is expectedto be at break-even. As an illustration, an entity that reportsquarterly, earns $15,000 pre-tax profit in the first quarter but expectsto incur losses of $5,000 in each of the three remaining quarters(thus having zero profit for the annual reporting period), andoperates in a jurisdiction in which the estimated annual effectiveincome tax rate is expected to be 20 per cent (the lowest marginalstatutory income tax rate in a progressive tax regime or the statutoryincome tax rate in a flat tax regime). Applying that rate to theannual reporting period to-date profit or loss/result figures, thefollowing table shows the amount of income tax expense (incometax revenue) that is recognised in each quarter:

1st

Quarter2nd

Quarter3rd

Quarter4th

Quarter AnnualTaxexpense $3,000 ($1,000) ($1,000) ($1,000) $0

The nil tax for the full annual reporting period is, conceptually,20 per cent of zero profit.

10. Because Australian entities are not generally subject to progressiveincome tax rates, the calculation of the annual effective income taxrate is straightforward. However, Australian entities may operate inforeign jurisdictions through overseas subsidiaries that are subject toa progressive tax regime and therefore need to perform calculationsto estimate a weighted average annual effective income tax rate.

11. To the extent practicable, a separate estimated annual effectiveincome tax rate is determined for each taxing jurisdiction and


applied individually to the interim period pre-tax profit or loss/resultof each jurisdiction. Similarly, if different income tax rates apply todifferent categories of taxable income (such as capital gains orincome earned in particular industries), to the extent practicable, aseparate rate is applied to each individual category of interim periodpre-tax profit or loss/result. Whilst that degree of precision isdesirable, it may not be achievable in all cases, and a weightedaverage of rates across jurisdictions or across categories of incomeis used if it is a reasonable approximation of the effect of using morespecific rates.

Difference in Annual Reporting Period and IncomeTax Year

12. If the annual reporting period and the income tax year differ, incometax expense for the interim periods of that annual reporting period ismeasured using separate estimated effective income tax rates foreach of the income tax years, applied to the portion of pre-tax profitearned in each of those income tax years.

13. Assume an entity’s annual reporting period ends on 30 June and itreports quarterly. Its income tax year ends on 31 December. Forthe annual reporting period that begins on 1 July, Year 1 and endson 30 June, Year 2, the entity earns $10,000 pre-tax profit eachquarter. The estimated annual effective income tax rate is 30 percent in Year 1 and 40 per cent in Year 2.

QuarterEnding30 SeptYear 1

QuarterEnding31 DecYear 1

QuarterEnding31 MarYear 2

QuarterEnding30 JuneYear 2

YearEnding30 JuneYear 2

Taxexpense $3,000 $3,000 $4,000 $4,000 $14,000

Tax Offsets (Credits and Rebates)

14. Some tax jurisdictions give taxpayers tax offsets against taxotherwise payable based on amounts of capital expenditures,exports, research and development expenditures, or other bases.Anticipated tax offsets of this type for the annual reporting periodare reflected in calculating the estimated annual effective income taxrate (see paragraph 6.1.4 of this Standard and paragraph 7 of thisAppendix) if those offsets are expected to be granted in theremainder of the annual reporting period during which time theentity achieves a certain level of expenditure or exports. On theother hand, a tax offset that relates to a one-time event is recognised


in calculating income tax expense in that interim period (such as aone-time tax offset relating to the purchase of an item ofequipment), in the same way that special tax rates applicable toparticular categories of income are not blended into a single annualeffective income tax rate. Moreover, in some jurisdictions taxoffsets, including those related to capital expenditures and levels ofexports, while reported on the income tax return, are more akin to agovernment grant and are recognised as revenue in net profit orloss/result in the interim period in which they arise.

Tax Loss Carrybacks and Carryforwards

15. The benefits of a tax loss carryback are reflected in the interimperiod in which the related tax loss occurs. Accounting StandardAASB 1020 and Australian Accounting Standard AAS 3 “IncomeTaxes” require that the benefit relating to a tax loss, which tax lawsin some jurisdictions allow to be carried back to recover income taxpaid or payable relating to a previous reporting period, berecognised as an asset to the extent that the tax loss will be carriedback. A corresponding reduction of income tax expense or increaseof income tax revenue is also recognised.

16. AASB 1020 and AAS 3 require that a deferred tax asset arising fromthe carryforward of unused tax losses be recognised to the extent,and only to the extent, that it is probable that future taxable amountswithin the entity will be available against which the unused taxlosses can be utilised. AASB 1020 and AAS 3 provide criteria forassessing the probability of the availability of taxable amountsagainst which the unused tax losses can be utilised. Those criteriaare applied at the end of each interim period and, if they are met, theeffect of the tax loss carryforward is reflected in the calculation ofthe estimated annual effective income tax rate.

17. Assume an entity that reports quarterly has an unused tax losscarryforward of $10,000 for income tax purposes at the start of thecurrent annual reporting period for which a deferred tax asset hasnot been recognised. The entity earns $10,000 in the first quarter ofthe current annual reporting period and expects to earn $10,000 ineach of the three remaining quarters, and will use the tax loss tooffset any taxes that would otherwise be payable. The statutoryincome tax rate is 40 per cent. Including the effect of the tax losscarryforward, the estimated annual effective income tax rate wouldbe 30 per cent [((10,000 × 4 − 10, 000) × 40%) ÷ 40,000]. Incometax expense is as follows:


1st

Quarter2nd

Quarter3rd

Quarter4th

Quarter AnnualTaxexpense $3,000 $3,000 $3,000 $3,000 $12,000

Contractual or Anticipated Purchase Price Changes18. Volume rebates or discounts and other contractual changes in the

prices of raw materials, labour or other purchased goods andservices are anticipated in interim periods, by the payer (and therecipient), if it is probable that they have been earned or will takeeffect. Thus, contractual rebates and discounts are anticipated butdiscretionary rebates and discounts are not anticipated because theresulting asset or liability would not satisfy the definition of an asset(future economic benefits controlled by the entity as a result of pasttransactions or other past events) and a liability (a future sacrifice ofeconomic benefits that the entity is presently obliged to make toother entities as a result of past transactions or other past events).

Provisions19. A provision is recognised when an entity has no realistic alternative

but to make a transfer of economic benefits as a result of an eventthat has created a legal or constructive obligation. The amount ofthe obligation is adjusted upward or downward, with acorresponding expense or revenue recognised in the statement offinancial performance, if the entity’s best estimate of the amount ofthe obligation changes.

20. This Standard requires that an entity apply the same criteria andbases for recognising and measuring a provision at an interimreporting date as it would at the end of its annual reporting period.The existence or non-existence of an obligation to make a futuresacrifice of economic benefits is not a function of the length of thereporting period. It is a question of fact, determined as at eachreporting date.

Major Planned Periodic Maintenance or Overhaul21. The cost of planned major periodic maintenance or overhaul or other

seasonal expenditure that is expected to occur late in the annualreporting period is not anticipated for interim financial reportingpurposes unless an event has caused the entity to have a legal or


constructive obligation. The mere intention or necessity to incurexpenditure related to the future is not sufficient to give rise to anobligation.

Other Planned but Irregularly Occurring Costs22. An entity’s budget may include certain discretionary costs expected

to be incurred irregularly during the annual reporting period, such ascharitable contributions and employee training costs. Recognisingan obligation at an interim reporting date for such costs that have notyet been incurred is not consistent with the definition of a liability(even though they are planned and tend to recur annually).

Intangible Assets23. An entity applies the definition and recognition criteria for an

intangible asset in the same way in an interim period as for anannual reporting period. Costs incurred before the recognitioncriteria for an intangible asset are met are recognised as an expense.Costs incurred after the specific point in time at which the criteriaare met are recognised as part of the cost of an intangible asset.“Recognising” costs as assets in an interim statement of financialposition in the expectation that the recognition criteria will be metlater in the annual reporting period is not justified.

Inventories24. Inventories are recognised and measured for interim financial

reporting purposes using the same criteria and bases as at the end ofthe annual reporting period. Accounting Standard AASB 1019 andAustralian Accounting Standard AAS 2 “Inventories” establishstandards for recognising and measuring inventories. Inventoriespose particular problems at any reporting date because of the need todetermine inventory quantities, costs and net realisable values.Nonetheless, the same measurement bases are applied to inventoriesfor interim reporting purposes. To save cost and time, entities oftenuse estimates to measure inventories at an interim reporting date to agreater extent than at the annual reporting date. Following areexamples of how to apply the net realisable value test at an interimreporting date, and how to treat manufacturing variances at aninterim reporting date.


Net Realisable Value of Inventories

25. The net realisable value of inventories is determined by reference toselling prices and costs expected to be incurred to complete anddispose of the inventories at interim reporting dates. An entityreverses a write-down to net realisable value in a subsequent interimperiod only if it would be appropriate to do so in similarcircumstances at the end of the annual reporting period.

Interim Period Manufacturing Cost Variances

26. Price, efficiency, spending and volume variances of a manufacturingentity are recognised in the determination of profit for an interimperiod to the same extent that those variances are recognised in thedetermination of profit for an annual reporting period. “Deferring”variances that are expected to be absorbed by the end of the annualreporting period is not appropriate because it could result inreporting inventory at the interim reporting date at more or less thanits portion of the actual cost of manufacture.

Depreciation and Amortisation27. Depreciation and amortisation for an interim period is based only on

assets controlled during that interim period. It does not take intoaccount asset acquisitions or dispositions planned for later in theannual reporting period.

Foreign Currency Translation Gains and Losses28. Foreign currency translation gains and losses are measured for

interim financial reporting purposes using the same bases as forannual financial reporting.

29. Accounting Standard AASB 1012 “Foreign Currency Translat ion”specifies how to translate the financial reports of foreign operationsand foreign currency items into the reporting currency. Entities donot anticipate any future changes in foreign exchange rates in theremainder of the current annual reporting period in translatingforeign operations and foreign currency items at an interim reportingdate.

30. In cases where AASB 1012 requires that translation adjustments berecognised as revenues or as expenses in the period in which theyarise, that requirement is applied during each interim period.


Entities do not defer some foreign currency translation adjustmentsat an interim reporting date on the basis that the adjustment isexpected to reverse before the end of the annual reporting period.

Interim Financial Reporting in HyperinflationaryEconomies31. Interim financial reports in hyperinflationary economies are

prepared using the same accounting policies as for annual financialreporting.

32. Exposure Draft ED 86 “Foreign Currency Translation” proposes t oamend AASB 1012 to require the financial reports of an entity thatreports to the parent entity in the currency of a hyperinflationaryeconomy be stated in terms of the measuring unit current atreporting date, and the gain or loss on the net monetary position beincluded in net profit or loss/result. Also, comparative financialinformation reported for prior periods is to be restated to the currentmeasuring unit.

33. Entities follow those same accounting policies at interim reportingdates, thereby presenting all interim information in the measuringunit as of the end of the interim period, with the resulting gain orloss on the net monetary position included in the interim period’snet profit or loss/result. Entities do not annualise the recognition ofthe gain or loss. Nor do they use an estimated annual inflation ratein preparing an interim financial report in a hyperinflationaryeconomy.

AASB 1029 47 CONFORMITY

CONFORMITY WITH INTERNATIONAL ANDNEW ZEALAND

ACCOUNTING STANDARDS

Conformity with International AccountingStandardsAs at the date of issue of AASB 1029 “Interim Financial Reporting”,compliance with AASB 1029 will ensure conformity with InternationalAccounting Standard IAS 34 “Interim Financial Reporting”.

Conformity with New Zealand AccountingStandardsAs at the date of issue of AASB 1029 “Interim Financial Reporting”,compliance with AASB 1029 will ensure conformity with FinancialReporting Standard FRS-24 “Interim Financial Statements” except thatFRS-24:

(a) requires additional explanations in relation t o the consequences ofapplying the discrete view where such explanations are necessary inorder to achieve the objectives of general purpose financialreporting;

(b) prescribes the line items and headings to be used in interim financialreports;

(c) requires the previous annual reporting period’s statement offinancial performance and statement of cash flows, and thestatement of financial position as at the end of the previouscorresponding interim period to be included in the interim financialreport as comparative information, except where the interimfinancial statements are being prepared for the first time; and

(d) requires a number of additional disclosures.

AASB 1029 48 BACKGROUND

BACKGROUND TO REVISIONThis section does not form part of the Standard. It is a summary of thedevelopment of the Standard.

1 The reissue of the Standard is part of a program commenced by theformer Australian Accounting Standards Board and the PublicSector Accounting Standards Board of the Australian AccountingResearch Foundation (the former Boards) to achieve greaterharmony between Australian accounting standards and those of theInternational Accounting Standards Committee. The reconstitutedAustralian Accounting Standards Board (AASB) is continuing thisprogram and has issued the Standard as part of a single series ofStandards rather than in the former two series as both an AccountingStandard and an Australian Accounting Standard.

2. The issue of the Standard follows consideration of the responsesreceived on Exposure Draft ED 96 “Interim Financial Reporting”,which was prepared by the former Boards and released in October1998. ED 96 contained proposals aimed at harmonising Australianaccounting standards with International Accounting StandardIAS 34 “Interim Financial Reporting”.

Principal Features of ED 96 Retained in theStandard3 The Standard retains the basic structure and content of ED 96

including the proposal that the accounting policies adopted ininterim financial reports must be the same as those adopted inannual financial reports. This requirement is consistent with that ofIAS 34 “Interim Financial Reporting”. Thus, the discrete approachis adopted as the primary conceptual basis for interim financialreporting. The AASB is of the view that the use of the samerecognition criteria and measurement bases as in annual financialreports results in assets, liabilities, equity, revenues and expensesreported in the interim financial report that conform to the conceptsin Statement of Accounting Concepts SAC 4 “Definition andRecognition of the Elements of Financial Statements”. TheStandard reflects the view that certain items of revenues andexpenses that are dependent on the annual level of activity should bedetermined at the interim reporting date by taking into account theestimated revenues and expenses for the whole annual reportingperiod. The approach is explained in paragraphs 6.1.3, 6.1.4 and6.1.5 of the Standard.


Noteworthy Differences from ED 964. After consideration of comments received on ED 96, new

paragraphs were included in the Standard to further explain orhighlight certain issues. Noteworthy differences between ED 96 andthe Standard include the following:

(a) ED 96 explicitly proposed that, for the purposes ofpreparing interim financial reports, each interim period betreated as a discrete reporting period. IAS 34 avoidslabelling its approach to interim financial reporting byexpressing the requirement in terms of the accountingpolicies adopted in annual financial reports. In the interestof harmonisation, the first sentence of paragraph 6.1 ofED 96, which explicitly referred to the term “discrete” wasdeleted;

(b) some commentators interpreted ED 96 as proposing an “allor minimal” approach to interim financial reporting. Toavoid this interpretation, the Standard clarifies that theentity can include financial statements or notes in theinterim financial report that go beyond the minimumrequired, but do not fully conform with all Australianaccounting standards;

(c) ED 96 noted that the preparation of interim financialreports generally requires a greater use of estimationmethods than annual financial reports. Where differentestimation methods are used in the interim financial reportas compared with the most recent annual financial report,the Standard requires disclosure of a description of thenature of those methods in the notes in the interim financialreport;

(d) ED 96 did not propose requirements regarding the labellingof condensed financial statements. To avoid anymisunderstanding, the Board decided that the Standardshould require that condensed financial statements beclearly labelled as such and that there be note disclosure incases where the interim financial report does not constitutea full financial report;

(e) ED 96 did not explicitly make proposals in relation tovoluntary disclosures in interim financial reports. TheStandard requires that additional disclosures that are dealt


with by other Australian accounting standards be made inaccordance with those standards;

(f) paragraph 7.3 of ED 96 dealt with disclosure in the notes inthe annual financial report of the nature and amount ofsignificant revisions of estimates in the final current interimperiod of the annual reporting period when a separatefinancial report is not published for that final currentinterim period. The Board decided that the nature andeffects of a change in accounting policy under the samecircumstances is also of significance and the Standardrequires disclosure in such cases; and

(g) some commentators noted that a proposal to require thedisclosure of the effect of planned changes in thecomposition of the entity is implicitly covered by otherdisclosure requirements of ED 96. Accordingly, theStandard does not require this disclosure.

Principal Changes from the Previous Standard5. The principal differences between the Standard and the previous

Accounting Standard AASB 1029 “Half-Year Accounts andConsolidated Accounts” include:

(a) the previous Standard applied only to disclosing entitiesrequired to prepare half-year accounts or consolidatedaccounts under the Corporations Law. The Standardapplies to all entities preparing general purpose interimfinancial reports of any length including, disclosing entitiesrequired to prepare half-year financial reports inaccordance with the Corporations Law;

(b) the previous Standard required certain disclosures relatingto the external auditor’s audit or review report. TheStandard does not require such information to be disclosedbecause it was considered by the Board as falling outsidethe scope of interim financial reporting;

(c) the previous Standard required the disclosure of balancesheet information as at the end of the previous financialyear and as at the end of the previous corresponding half-year. The Standard only requires the presentation of thestatement of financial position as at the end of the previousannual reporting period. When the entity’s operations arehighly seasonal, the Standard encourages reporting of


financial information for the twelve months ending on theinterim reporting date and comparative information for theprior twelve-month period on the grounds that, in thecircumstances, the provision of such information wouldprove useful; and

(d) the previous Standard did not provide explicit guidance onannually determined items. To enhance the consistentapplication of the requirements, the Standard notes thatsuch items should be determined at the interim reportingdate by taking into account the estimated revenues andexpenses for the whole annual reporting period andprovides an appendix containing explanatory examples.

Documents

Interim Financial Reporting · 2013-11-20 · 3.1.1 Timely and reliable interim financial reporting improves the ability of users to understand an entity’ s capacity to generate