Audit firms in Dubai, UAE use Interim financial statements to update the annual financial statements. IAS 34 outlines how internal auditors and audit firms in Dubai should prepare interim financial reports under IFRS.
However, it does not specify which entities are required to prepare them or how often. Listing entities in Dubai, UAE, must prepare interim financial reports on a semi-annual or quarterly basis. An interim period is a shorter financial reporting period than the full financial year.
IAS 34 requires financial audit specialists to present condensed financial statements with special explanatory notes. These financial statements are much shorter than full financial statements. However, certain countries’ local laws may require that listed entities publish complete financial statements for interim periods. IAS 34 doesn’t prohibit preparing complete financial statements for interim periods.
Content, Form, And Components of Interim Financial Statements
All primary financial statements should be included in the interim financial report. However, they must be condensed according to IAS 34.8. Condensed means that only the headings and subtotals from last year’s financial statements must be included (IAS 34.10). However, it can be argued that interim financial statements that do not include heading and subtotal could be misleading. Some entities in Dubai UAE use the same line items as in the year-end financial statements. Others combine the less important into one.
Users of interim reports will access the entity’s most recent annual financial reports. Therefore, an interim report should only include transactions and events during the interim period. IAS 34 lists non-exhaustive examples of transactions or events that should be disclosed if they are significant.
Recognition And Measurement In Interim Financial Reports
General Requirements
Audit services in UAE should apply the same accounting policies to both interim and annual financial statements. This does not apply to changes in accounting policies made under IAS 8. These will have an impact on annual financial reports. IAS 34 states that the reporting frequency should not affect annual results. Therefore, all interim period measurements are taken on a calendar year basis.
Interim Reports Include Estimates
IAS 34, estimates for interim periods can be less precise than annual financial statements.
Asset Impairment
It is unnecessary to test assets for impairment at every interim period closing. However, assessing impairment indicators will suffice. This assessment should be more thorough if there is less headroom than the last annual impairment tests.
It has been a considerable debate whether impairment of goodwill recognized during interim periods could be reversed in the annual financial statements for the following year. IAS 36 prohibits any reversal of impairment of goodwill. IAS 34, however, states that annual results should not be affected by the frequency of reporting.
Internally Produced Intangible Assets
In an interim statement of financial situation, company financial audit specialists are prohibited costs as assets in the hope that the recognition criteria set out in IAS 38 for the internally generated intangible asset will be met later in a financial year.
Payroll Taxes and Contributions From Employers
Most countries pay a set amount of annual remuneration to employees in employer payroll taxes and contributions. As high-earners earn more than the predetermined annual remuneration, these payments decrease. Paragraph IAS 34.B1 states that Dubai internal auditors and external auditors should calculate the average annual effective payroll tax rate or contribution rate and apply it to an interim period. This requirement means that an expense for interim periods will be recognized as a lower amount than the payments made by the company. Therefore, part of the payments will be recognized as assets and expensed later in the year.
Holidays And Vacations
The same criteria are used for interim financial statements to recognize liabilities and expenses for accruing paid absences that have been carried forward. This means that entities reporting interim financials just before peak vacation/holiday seasons have to recognize higher liabilities, even if employees use all of their annual leave during the remainder of the year.
Employee Benefits Actuarial Valuations
According to IAS 34.B9, entities in Dubai and UAE do not prepare interim actuarial valuations. The latest valuation is used to determine service and interest costs. It is necessary to adjust it for “significant market fluctuations.” This often involves updating the discount rate. Any one-off events, such as settlements, curtailments, or plan amendments, should be recognized in interim financial statements. Additional actuarial valuation might be necessary for material one-off events.
Volume Discounts And Rebates
Suppose it is likely that any contractual volume rebates or other discounts will be earned. In that case, they should be planned for during an interim period in both revenue and expenses (IAS 34.B23). This cannot be used for rebates or discounts that are discretionary. It is not written in a contract and is unambiguously enforceable.
Income Tax
IAS 34.30c says that company auditors should expense income tax recognized in interim periods based on the best estimate for the annual average income tax rate for the entire financial year. The expected weighted annual income tax rate for interim periods is used in jurisdictions with a progressive tax rate. Tax credits may be applied to certain items, such as capital expenditures. They can also be applied to qualified items recognized during an interim period to capital expenditures.
Seasonal Businesses
Entities with seasonal businesses can’t anticipate or defer revenue/expenses at interim dates unless it would be appropriate at the year-end based on other IFRS. The standard allows such Dubai entities to provide additional financial information up to the end of the interim period and comparative information over the previous twelve-month period. This is rare in practice.
Read also: How Audit Firms In Dubai Account For Inventory Under IFRS: IAS 2 Inventories Review
Kasun Liyanage is an Audit Manager with over 7 years of experience dealing with diversified corporate clients. He not only manages the team’s work schedule but also is an expert in handling audit areas such as external audits and fraud investigation, Internal control benchmarking and best practices and well as preparation of financial statements and IFRS compliance.
