What are Interim Financial Statements?
Interim financial statements are documents that cover the financial activity of a business or other entity for a period of less than one calendar year. Often, this type of statement is issued to cover a three-month period of activity, although some companies choose to issue a monthly or a semi-annual statement. While the structure of the reports included in a statement of this type will follow generally accepted accounting principles, the information is usually unaudited, since the audit is normally conducted just prior to issuing the annual statement.
Interim financial statements, like their annual counterparts, usually include three types of reports. These three are the balance sheet, the statement of cash flows, and the profit and loss statement. Some organizations also include a report on the owner’s equity as a fourth resource.
It is not unusual for organizations to issue interim financial statements. For businesses, the issuing of quarterly financial statements often has to do with keeping investors informed of how well the company is doing. Some businesses prefer to issue monthly financial statements that not only help keep investors informed, but also serve as a tool to assess the current operating status of the business. This use of the document makes it possible to initiate changes in policies of procedures that are likely to enhance the profitability of the business in the next accounting period.
The frequency of the issuance of interim financial statements is often influenced by location and what is considered standard within a given industry. In the United States, three-month statements are common; in the United Kingdom, semi-annual statements are often the norm. Even allowing for location, however, organizations may choose to issue statements based on what others in the same industry routinely do. For example, if a major retailer chooses to issue monthly interim financial statements, many of the smaller retailers that directly compete with the larger retailer will also release monthly statements.
While useful, interim financial statements are usually not considered as authoritative as the annual statements. There are several reasons for this. First, while many interim statements do account for seasonality effects with the aid of a footnote disclosure, the full impact of those effects may not be seen until the following month or quarter. In addition, the data for these statements are pulled directly from the accounting books, and has not been subject to an audit prior to the preparation of the statements. This is in contrast to annual statements, which present a more comprehensive picture of organizational finances, and which have usually been audited and qualified before the detail is released.
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