December 24, 2018

What Are Interim Financial Statements?

An interim statement offers a detailed account of a business’s current financial standing. Interim reports typically “fill in the gap” between annual reports. Many companies face financial challenges, including liquidity issues. With interim statements, you can closely track your company’s performance in a timely manner. In this post, we'll review what interim statements are, why they're important, and whether your small business should issue them.

Interim Statements Explained

So, what are interim statements? These statements cover a period of less than one year, with quarterly reports being perhaps the most common example. With quarterly reports, companies release financial reports every quarter, updating investors and stakeholders of the company’s performance. Organizations in a variety of industries and sizes compile interim statements. However, the practice was first popularized by publicly traded corporations, which are required to issue annual reports in most jurisdictions. Still, a lone annual report only provides information once per year. Many stakeholders, especially investors, want information on a timelier basis. That’s where interim statements come in; they provide information throughout the year. While quarterly reports are the most common interim reports, balance sheets, income statements, and statements of cash flow are also common. Some companies choose to release interim reports even when they aren't required by law to do so. For example, a family owned business might create a quarterly report simply so that the whole family is up-to-date on the company numbers.

Should Small Businesses Compile Interim Statements?

If you don’t have public investors or regulators to appease, should you ignore interim statements? While the choice may ultimately be yours, interim statements offer many benefits for small business owners. Cash flow and liquidity issues are among the most common challenges for small businesses, and one of the biggest reasons so many companies fold. By compiling interim statements, you’ll have a better grasp on your current finances and cash flow. This will pay dividends while plotting your business strategy. For example, with interim statements, you can identify activities that are costing significant revenue but not producing profits. Or, you could find highly profitable opportunities. Likewise, you might realize that your financial health isn’t as strong as you thought. There are many reasons small businesses should put interim statements together. Of course, doing so will require time and resources. You should balance the input costs versus the benefits.

Does My Company Need to Release Interim Statements?

If your company is publicly traded, you most likely have to release quarterly reports. Make sure you check with relevant financial authorities to see what your reporting requirements are. The SEC provides a financial reporting manual that outlines requirements and procedures for publicly listed companies in the U.S. If your corporation or limited liability company (LLC) isn't publicly traded, you may not have to file quarterly reports or even annual reports. However, reporting requirements vary by state. Even if the SEC or federal government doesn't require you to file statements, your local state government may require you to.

Why Some Companies Forego Interim Statements

Interim reports, including quarterly reports, aren't required in some jurisdictions, with the United Kingdom being the most prominent example. In 2014, the United Kingdom decided to stop requiring quarterly reports with hopes that business leaders would focus on longer-term goals rather than short-term gains. Regardless, most UK companies continue to issue quarterly reports. Since quarterly reports increase transparency, it’s possible that suspending reporting would scare investors away or encourage them to scrutinize annual reports more closely. Keep this in mind if you’re not required to issue interim reports. However, a few companies such as Unilever, have decided to forego quarterly reports. Unilever CEO Paul Polman decided to end quarterly reports so his company could focus on long-term plans, rather than trying to meet the immediate expectations of investors.

Conclusion: Interim Statements Are Important

It’s important to meet all of your reporting obligations. Failing to do so could result in regulatory headaches and legal actions. This is especially true for publicly traded companies, which must adhere to strict reporting requirements, with unaudited Interim Period Financial Statements being required in most jurisdictions. Even if your company isn’t required to file interim statements, it’s smart to monitor performance. Some businesses choose to prepare interim statements throughout the year but keep them confidential. Such reports are useful for investors, management, and the company’s board of directors. Even if you run a small business, assembling interim statements could prove useful. At the very least, you’ll be better informed, and when it comes to business, knowledge is power.