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29.3 Presentation of interim financial information
Publication date: 30 Nov 2021
us Financial statement presentation guide
US GAAP includes minimal presentation requirements for interim financial reporting. As such, many reporting entities follow Article 10, although that guidance is only required for SEC registrants. Interim financial information prepared in accordance with US GAAP, and if applicable, Article 10, may, at the option of the reporting entity, be either of the following:
- A complete set of financial statements with either (1) full footnote disclosures, or (2) limited footnote disclosures as required by US GAAP (see FSP 29.4), and if applicable, Article 10, and other disclosures that update the most recently audited footnotes for significant changes
- Condensed financial statements with limited footnote disclosures as required by US GAAP (see FSP 29.4), and if applicable, Article 10
Reporting entities qualifying for smaller reporting company status (as defined by S-K 10(f)) may follow the requirements of S-X 8-03 rather than Article 10.
29.3.1 Article 10 interim financial statement requirements
If Article 10 is followed, the interim financial statements are usually labeled as “condensed.” This is because the financial statement line items are not shown in the same level of detail and/or there are fewer footnotes as compared to annual financial statements.
If certain line item captions are required to be presented separately, but were permitted to be combined in prior interim financial statements (e.g., due to immateriality), the comparative periods should be retroactively reclassified to conform to the current period presentation.
SEC regulations do not require interim financial statements to be audited. However, if the interim financial statements are unaudited, S-X 10-01(b)(8) require reporting entities to disclose that all adjustments necessary for a fair statement of the results for the periods presented have been included and that such adjustments are of a normal recurring nature. If applicable, the reporting entity should describe any other-than-normal recurring adjustments. Reporting entities should also clearly disclose that certain information was derived from the prior annual audited financial statements. Figure FSP 29-1 provides an example of this disclosure.
Figure FSP 29-1
Example disclosure—unaudited interim financial statements
Example disclosure—unaudited interim financial statements
Note X
In the opinion of the Company, the accompanying unaudited condensed financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of September 30, 20X2, and its results of operations for the three months and nine months ended September 30, 20X2, and 20X1, and cash flows for the nine months ended September 30, 20X2, and 20X1. The condensed balance sheet at December 31, 20X1, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements.
In the opinion of the Company, the accompanying unaudited condensed financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of September 30, 20X2, and its results of operations for the three months and nine months ended September 30, 20X2, and 20X1, and cash flows for the nine months ended September 30, 20X2, and 20X1. The condensed balance sheet at December 31, 20X1, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements.
Although there are no requirements specifying where in the footnotes to disclose the description of unaudited interim financial statements, we suggest that such disclosure be included as a separate section in the accounting policy footnote or in a separate footnote immediately preceding the accounting policy footnote.
The use of the words “fair statement” rather than “fair presentation” in the example disclosure is intentional. Unless the interim financial statements are accompanied by complete footnote disclosures, the phrase “fairly presented” should not be used as that wording is only appropriate in the context of full US GAAP financial statements and footnotes.
29.3.2 Balance sheet
Article 10 requires interim financial information to include balance sheets as of the end of the most recent quarter and the preceding fiscal year. An interim balance sheet for the comparable prior year quarter does not need to be included unless it is necessary to understand seasonal fluctuations.
Article 10 allows certain balance sheet line items to be condensed, as described in the following excerpt:
Interim balance sheets shall include only major captions (i.e., numbered captions) prescribed by the applicable sections of this Regulation with the exception of inventories. Data as to raw materials, work in process and finished goods inventories shall be included either on the face of the balance sheet or in the notes to the financial statements, if applicable. Where any major balance sheet caption is less than 10% of total assets, and the amount in the caption has not increased or decreased by more than 25% since the end of the preceding fiscal year, the caption may be combined with others.
In practice, many reporting entities start with their annual balance sheet and identify line items that can be combined with other line items using the thresholds outlined in Article 10 (i.e., 10% of total assets, 25% change since preceding fiscal year). However, as discussed in the excerpt above, reporting entities are required to disclose the components of inventory on an interim basis even if the change from the annual reporting period is not significant. The interim presentation of inventory is further discussed in ASC 270-10-S99-2 (SAB Topic 6.G.2a, Question 2).
29.3.3 Comprehensive income
ASC 270 requires publicly-traded reporting entities to report sales or gross revenues, provision for income taxes, net income, and comprehensive income. A publicly-traded company is defined by the ASC Master Glossary.
Definition from ASC Master Glossary
Publicly Traded Company: A business entity that has any of the following characteristics:
- Whose securities are traded in a public market on a domestic stock exchange or in the domestic over-the-counter market (including securities quoted only locally or regionally)
- That is a conduit bond obligor for conduit debt securities that are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local or regional markets)
- Whose financial statements are filed with a regulatory agency in preparation for the sale of any class of securities in a domestic market
Additionally, ASC 220, Comprehensive Income, requires a reporting entity to report a total for comprehensive income in condensed financial statements of interim periods, either as a single continuous statement with the income statement or as two separate consecutive statements. ASC 220 does not require disclosure of the components of comprehensive income. However, if there is a significant difference in the components of comprehensive income from the prior year end or a significant difference in comprehensive income compared with net income, the major components should be disclosed.
Article 10 requires interim financial information to include statements of comprehensive income for the most recent quarter, the corresponding quarter in the preceding year, and the year-to-date periods for both years. The reporting entity may also present a statement of comprehensive income for the cumulative 12-month period ended during the most recent fiscal quarter and for the corresponding preceding period if that information would be meaningful to financial statement users.
Article 10 allows the statement of comprehensive income to condense certain line items presented in the annual period.
Interim statements of comprehensive income shall also include major captions prescribed by the applicable sections of Regulation S-X. When any major statement of comprehensive income (or statement of net income if comprehensive income is presented in two separate but consecutive financial statements) caption is less than 15% of average net income attributable to the registrant for the most recent three fiscal years and the amount in the caption has not increased or decreased by more than 20% as compared to the corresponding interim period of the preceding fiscal year, the caption may be combined with others. In calculating average net income, loss years should be excluded. If losses were incurred in each of the most recent three years, the average loss shall be used for purposes of this test. Notwithstanding these tests, Rule 4-02 of Regulation S-X applies and de minimis amounts therefore need not be shown separately, except that registrants reporting under Article 9 shall show investment securities gains or losses separately regardless of size.
Reporting entities should also present the changes in the components of accumulated other comprehensive income (AOCI) for the current period as required by ASC 220. They are required to present separately the amount of the change that is due to reclassifications and the amount that is due to other comprehensive income in the current period. These changes may be shown either before or net of tax and displayed either on the face of the financial statements or in the footnotes. Although ASC 220 indicates that the information should be presented for the current period, we believe that providing comparative information is also useful to financial statement users.
ASC 220 also requires that reporting entities present (either in a single footnote or parenthetically on the face of the financial statements) the effect of significant amounts reclassified from each component of AOCI based on its source (e.g., related to cash flow hedges from interest rate contracts) and the income statement line items affected by the reclassification (e.g., interest income or interest expense). If a component is not required to be reclassified to net income in its entirety (e.g., net periodic pension cost), reporting entities should instead cross reference to the related footnote for additional information (e.g., the pension footnote).
Question FSP 29-1 addresses whether the disclosure of the change in each component of AOCI should be reported on a year-to-date and a quarter-to-date basis for SEC registrants.
Question FSP 29-1
Is an SEC registrant required to disclose the change in each component of AOCI as noted in ASC 220-10-45-14A on both a quarter-to-date and year-to-date basis?
Is an SEC registrant required to disclose the change in each component of AOCI as noted in ASC 220-10-45-14A on both a quarter-to-date and year-to-date basis?
PwC response
Article 10, as amended, requires disclosure of changes in stockholders’ equity, but not the changes in each component of AOCI. However, the disclosure of changes in each component of AOCI is required by ASC 220-10-45-14A. Registrants can elect to either break out each component of AOCI on the face of the statement of changes in stockholders’ equity or in the footnote. This information should be provided on a year-to-date and quarter-to-date basis.
Question FSP 29-2 addresses whether an entity can present net income and other comprehensive income in a single statement format for interim reporting and a two statement format for annual reporting.
Question FSP 29-2
ASC 220 requires reporting entities to present net income and other comprehensive income in either a single continuous statement of comprehensive income or in two separate, but consecutive, statements.
Is it possible to use a single statement format for interim reporting and a two-statement format for annual reporting?
ASC 220 requires reporting entities to present net income and other comprehensive income in either a single continuous statement of comprehensive income or in two separate, but consecutive, statements.
Is it possible to use a single statement format for interim reporting and a two-statement format for annual reporting?
PwC response
Yes. Some reporting entities elect to provide the minimum information required for interim reporting and only present total comprehensive income in a single statement format. However, because of the additional annual reporting requirements, a reporting entity may prefer to use a two-statement format at year end. Because both formats provide the same information, there is no requirement to use the same format in interim and annual periods.
29.3.4 Cash flow statement
Article 10 requires the statement of cash flows to be presented for the year-to-date period and for the corresponding period of the prior year. The reporting entity may also present a statement of cash flows for the cumulative 12-month period ended during the most recent fiscal quarter and for the corresponding preceding period if that information would be meaningful to financial statement users.
Similar to the balance sheet and income statement, the statement of cash flows may also be presented on a condensed basis as described below.
The statement of cash flows may be abbreviated starting with a single figure of net cash flows from operating activities and showing cash changes from investing and financing activities individually only when they exceed 10% of the average of net cash flows from operating activities for the most recent three years. Notwithstanding this test, Rule 4-02 applies and de minimis amounts therefore need not be shown separately.
As discussed in ASC 270-10-S99-2 (SAB Topic 6.G.2a), if operations resulted in a net outflow of cash and cash equivalents during any of the three years, such amount should be excluded from the computation of the average unless operations resulted in a net outflow of cash and cash equivalents in all three years.
Interim cash flow statements do not require separate disclosure of the amounts of cash interest and taxes paid during the interim periods. While Article 10 allows the statement of cash flows to start with a single figure for cash flows from operating activities, reporting entities may want to consider whether stakeholders would benefit from expanded cash flows from operating activities, similar to annual presentations, rather than the abbreviated presentation.
Further, as discussed in ASC 230-10-50-3, reporting entities with non-cash investing or financing activities should disclose these amounts as supplemental disclosures in any period in which they occur. These disclosures may be provided in a narrative format or summarized in a schedule.
29.3.5 Presentation requirements- statement of stockholders’ equity
Article 10 requires reporting entities to provide an analysis of changes in each caption of stockholders’ equity and noncontrolling interests, which will need to be accompanied by dividends per share and in the aggregate for each class of shares. These disclosures are required to be provided for the most recent quarter, the corresponding quarter in the preceding year, and the year-to-date periods for both years.
There is no specified format that must be followed to present the interim information about changes in stockholders’ equity. We believe, for example, that a calendar year-end company reporting for the third quarter can comply with the requirement by either:
- presenting an analysis of changes in each caption from January 1 to September 30 and a separate analysis from July 1 to September 30 for each year; or
- “stacking” each of the quarter-to-date analyses (January 1 to March 31, April 1 to June 30, and July 1 to September 30) to build a year-to-date analysis for each year.
There may be other acceptable presentations; however, the disclosure must be presented in the form of a reconciliation either as a separate statement or in the footnotes.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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