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5ISTQ

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Intermediate Accounting (Kieso)
Found in: Page 1466

Short Answer

Interim reporting under IFRS:

(a) is prepared using the discrete approach.

(b) is prepared using a combination of the discrete and integral approach.

(c) requires a complete set of financial statements for each interim period.

(d) permits companies to omit disclosure of material events subsequent to the interim reporting date.

The correct option is (a).

See the step by step solution

Step by Step Solution

Meaning of IFRS

The International Financial Reporting Standards, or IFRS, are a set of accounting and financial reporting principles for creating and presenting financial statements that are universally recognized. It maintains consistency in accounting practices, allowing financial records to be compared among reporting organizations throughout the world.

Explaining the correct options

The discrete method (i.e., each intermediate interval is a stand-alone reporting period) and the integral approach (i.e., each interim interval is a continuous reporting period) are the two most common approaches to interim reporting (i.e., an interim period is an integral part of the annual period).

According to IAS 34, each financial period is treated as a separate entity in terms of accounting standards. As a result, accounting principles that apply to intermediate periods should be consistent with those that apply to yearly periods.

Therefore, interim reporting under IFRS is prepared using the discrete approach.

Explaining the incorrect options

b) It is stated under the guidelines of IFRS that an interim report should disclose either by discrete or integral approach. The combination of discrete and integral approaches is not a valid approach for interim reporting.

c) Under IFRS guidelines for interim reporting there is no requirement for a complete set of financial statements for each interim period. It should be reported by either a discrete or integral approach

d) Interim reporting under IFRS does not permit companies to omit disclosure of material events subsequent to the interim reporting date.

Most popular questions for Business-studies Textbooks

The following statement is an excerpt from the FASB pronouncement related to interim reporting. Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of such information rests on the relationship that it has to the annual results of operations. Accordingly, the Board has concluded that each interim period should be viewed primarily as an integral part of an annual period. In general, the results for each interim period should be based on the accounting principles and practices used by an enterprise in the preparation of its latest annual financial statements unless a change in an accounting practice or policy has been adopted in the current year. The Board has concluded, however, that certain accounting principles and practices followed for annual reporting purposes may require modification at interim reporting dates so that the reported results for the interim period may better relate to the results of operations for the annual period.

Instructions

The following six independent cases present how accounting facts might be reported on an individual company’s interim financial reports. For each of these cases, state whether the method proposed to be used for interim reporting would be acceptable under generally accepted accounting principles applicable to interim financial data. Support each answer with a brief explanation.

a) J. D. Long Company takes a physical inventory at year-end for annual financial statement purposes. Inventory and cost of sales reported in the interim quarterly statements are based on estimated gross profit rates, because a physical inventory would result in a cessation of operations. Long Company does have reliable perpetual inventory records.

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