As business owners and professionals know, annual financial reporting is part and parcel of managing a business and following all accounting principles governing the reporting cycle . But what about the statements made throughout a given accounting period, not just at the end?
Known as interim financial statements, these documents are an essential part of the management process and should be used throughout the reporting cycle. Here’s what your business needs to know about interim reporting.
An interim financial statement, also known as an interim financial report, is a financial statement in accounting that covers a business’s activity within a period of less than one fiscal year. Companies can generate interim reports monthly, quarterly, semi-annually, or at any time throughout the year.
These interim financial statements provide an overview of the business’s financial standings before the end of the reporting cycle. As a small business owner, you can use these ongoing reports to help determine current cash flows and financial performance throughout the tax year.
Creating accounting documents at the end of the tax year, such as an income statement, balance sheet, or cash flow statement, are known as annual financial statements and are not considered interim financial statements.
Interim refers to the intervening time between set periods. In the context of accounting cycles, it is the time between these designated reporting periods. An interim statement is one produced at any time before the end of the reporting period, as opposed to annual financial statements generated at the end of the tax year.
Most businesses will create quarterly reports to determine their current financial health. These quarterly reports are a type of interim report. Progress reports are another type of interim statement. A loan statement and supplier bills created in the middle of an accounting period are also considered interim financial statements.
Interim reports benefit a company in numerous ways. First, they provide valuable insight into the business’s financial performance. Reading financial statements allows business owners and managers to gain a comprehensive understanding of their financial position. Interim statements provide this overview at any given time, which can help to monitor performance and improve revenue generation and cash flow to successfully grow the company.
Second, providing interim statements to shareholders, those that have a stake in your company, can grow your business’s credibility in their eyes and secure future investments. When businesses produce these statements for themselves, they should also provide them to any shareholders of the company. As these shareholders are invested in the business, they should have access to its financial information. Reliable quarterly reports can heighten stakeholder confidence in the company and investment capital overall.
Finally, there may be certain legal requirements that dictate businesses must produce interim reports to the government bodies and the public at monthly intervals throughout the tax year. Such interim financial statements, outside of the annual financial statements, may be mandated by the local authorities, so it is important you know what is required of your business.
The International Financial Reporting Standards Foundation (IFRS) is an independent organization that has created a global standardization of accounting processes. They have set out interim financial reporting standards that businesses can follow when generating these financial statements.
Generally speaking, interim reporting should follow all guidelines as annual reporting requirements. Interim financial reporting should include three main statements:
The report should also consist of any other follow-up information regarding dividends, stocks, and financial-related evidence or summaries. Businesses can also tailor their reports for various purposes, such as informing potential stakeholders and investors, for consulting tax and accounting professionals, or for the company’s internal processes.
Depending on the structure of your business, the laws and regulations in your province, and the business’s accounting policy, you may be legally required to produce quarterly reports for government bodies and the public. Typically, incorporated businesses must generate interim financial reports as a government requirement for stakeholders, the public, and tax purposes.
Companies with stakeholders should always provide interim reports to their shareholders to ensure they have an understanding of their investments and the business’s cash flows and accounting practices. Even without stakeholders, businesses can create an interim financial report for their own internal purposes. You’ll need to take these factors into consideration when deciding whether or not to generate these documents.
Finding the right tools to help with your business’s accounting policies and interim financial reporting is a must. With the right software, you can save time, money, and effort when it comes to gathering financial data and generating interim and annual reports.
Accounting software can help businesses successfully monitor and manage their finances as it gathers all financial data in one place. And with access to a comprehensive set of features, you can monitor cash flow and generate reports for greater business insight and control.
Keep an expert eye on your books when your small business uses QuickBooks Online to download the software for free today and start reporting like an accounting professional.
