Other Aspects of the Disclosure Problem Interim Financial Reporting

Other aspects of the disclosure problem Interim financial reporting

Interim financial reports provide financial information for a period of less than one year. In the United Kingdom quoted companies have to deliver a six-monthly report of profitability and financial position to their shareholders. In the United States the disclosure requirement is on a quarterly basis. Interim reports are not audited.

One normative characteristic of the process of reporting to users discussed previously was that of timeliness. The aim of interim reports is to provide users with more timely information about companies so as to alleviate the disadvantages of the significant time lag between annual reports. Research findings indicate that interim financial reports play an important role in security investment decisions. Changes in share prices, following the disclosure of quarterly earnings are greater than average share price changes during the year (Foster, 2015).

The limitations which circumstances impose on the level of precision attainable in assigning the results of a company's operations to annual periods are severe. The limitations are even more severe when we undertake to assign results to shorter accounting periods. However, American experience indicates that a more extensive use of interim reports in the United Kingdom would enhance the predictability of company reports. Whether interim financial reports should be audited is a very controversial subject. At the present time it is doubtful that the benefits to investors would justify the cost to the reporting companies.

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Read on: Segment Reporting

The ideal method of reporting discussed earlier on page 366 suggested that cash flow forecasts for all the segments of the enterprise should be made available to external users. Advocates of segment reporting argue that the separate segments of an enterprise are usually subject to different economic conditions, different degrees of risk and exhibit different growth rates. A single, all-inclusive report tends to average out these differences, thereby obscuring them. Accordingly, they argue that segment reporting would enable users of financial reports to make better decisions.

Progress towards... see: Segment Reporting