Do interim financial statements need to be audited? (2024)

Do interim financial statements need to be audited?

Unlike annual statements, interim statements do not have to be audited. Interim statements increase communication between companies and the public and provide investors with up-to-date information between annual reporting periods. These may also be referred to as interim reports.

The statement is unaudited since interim statements are not required to be audited, unlike annual financial statements. However, they still contain the same elements – a balance sheet, an income statement, and a statement of cash flows.

Unlike annual financial statements, interim financial statements are usually unaudited and condensed. So, when reviewing interim reports, revisiting last year's complete annual financial statements may be helpful. Also check that accounting practices are consistent between the interim and year-end financial statements.

Interim financial statements are not required under US GAAP. But, a fund may be required to prepare and file interim financial statements with a regulator or stock exchange. This is usually for the first six months of the fund's accounting year.

Obtain written representation from management; Read the other information that accompanies the interim financial information to consider whether any such information is materially inconsistent with the interim financial information; Issue a written report in accordance with the ISRE; and.

Purpose: Internal audits focus on measuring current performance and finding areas for improvement. External audits focus on proving the accuracy and veracity of financial statements. Auditor: External auditors are from a third party while internal auditors work on a company's behalf.

An interim audit is an audit that is performed before the end of a client's fiscal year and covers the preceding six to nine months. Interim auditing often entails conducting tests of controls and occasionally doing specific substantive processes.

What are Interim Financial Statements? Interim financial statements are financial statements that cover a period of less than one year. They are used to convey information about the performance of the issuing entity prior to the end of the normal reporting year, and so are closely followed by investors.

What are the four financial statements required by GAAP?

The four main financial statements include: balance sheets, income statements, cash flow statements and statements of shareholders' equity. These four financial statements are considered common accounting principles as outlined by GAAP.

The SEC requires that publicly traded companies in the U.S. regularly file GAAP-compliant financial statements in order to remain publicly listed on the stock exchanges.4 GAAP compliance is ensured through an appropriate auditor's opinion, resulting from an external audit by a certified public accounting (CPA) firm.

Under IFRS Standards, condensed interim financial statements include, at a minimum, each of the headings and subtotals that were included in the most recent annual financial statements; there is no such requirement under US GAAP⁴. In addition, IAS 34 requires presentation of a condensed statement of changes in equity.

Interim Financial Statements may neglect the estimates for Non-Performing Assets write-offs, accrued expenses, yearly management bonuses or income taxes. Unlike Annual Financial Reporting, Interim Financial Reporting is usually unaudited and presented in condensed form.

Downsides of interim reporting

Also, check that accounting practices are consistent between the interim and year-end financial statements. Specifically, interim numbers may omit estimates for bad-debt write-offs, accrued expenses, prepaid items, management bonuses or income taxes.

Interim audit The interim audit is that part of the audit which takes place before the year end. The auditor uses the interim audit to carry out procedures which would be difficult to perform at the year end because of time pressure.

The importance of the interim financial statement

The primary use of interim financial statements is to provide timely information about a company's financial position, performance, and cash flows.

Example of an Interim Audit

Suppose Company A's fiscal year ends on December 31. The external auditors typically conduct the year-end audit in the first quarter of the following year to verify the financial statements of the company.

Thus, interim reporting helps make early projections regarding cash flows and other company developments. Estimate Annual Earnings: Annual earnings can be estimated based on interim financial reports. Gain or loss in a quarter period helps properly estimate a company's profit or loss at the end of the fiscal year.

Interim Audit involves preliminary audit work done by the auditor conducted prior to the end of financial year. Interim Audit is done to shorten the period needed to conduct the final audit so that financial statements are presented to the management soon.

Who conducts interim audit?

An interim audit is one type of review done by the auditors before the final audit takes place. The decision to examine the books of accounts in between the financial year is taken by the higher management to ensure the veracity of the financial records.

Audit testing at interim dates may permit early consideration of significant matters affecting the year-end financial statements (for example, related party transactions, changed conditions, recent accounting pronouncements, and financial statement items likely to require adjustment).

An interim report is similar to a final report, in that it includes a summary, a brief description of the progress, the evaluation thus far, and an overview of the financial situation. Any delays or deviations to the plan are included and explained, as well as any comparison between actual compared to expected results.

The limitation of the interim audit is that the accounting staff can alter figures after the completion of the audit; it creates confusion in the minds of audit staff at the time of the final audit.