Along the journey of running a business as an entrepreneur, have you ever heard of interim reports? These reports are the financial statements that a company will report for a period that is shorter than a year. A company may choose to prepare these reports monthly, quarterly or semiannually. Typically, instead of having a full financial audit (Also see Introduction to Operational Audit) by hiring an external audit firm in Johor Bahru, the internal auditors of the company will be those who will review these reports.
According to the requirement of laws, business owners only need to generate financial reports annually. However, interim reports would be helpful to the investors as these reports can provide updated information to them between the annual reporting periods. Hence, interim reports help to establish transparent and more efficient communication between the company and the investors.
As investors make investment decisions around the year, they will not wait for the annual financial reports that the company will only issue once a year when the financial year comes to an end. In the world of business (Also see Identifying the Profitability of a Business), which is subject to various changes all the time, interim reports will be able to provide the shareholders and investors with a better picture of the financial position of the company. Thus, interim reporting helps the investors and the management to estimate the company’s annual earnings according to its interim financials. They will also be able to predict the cash flow (Also see Ways to Organize Your Business’s Cash Flow) and determine the turning points of the financial position of the company.
As we can see, interim reports can bring a lot of advantages to the management of the company as well as to its stakeholders. With the help of interim reports, the company will be able to improve its connection with the investors. If a company generates interim reports, it will be able to detect any material misstatements, frauds or errors that occur in the financial statements. This helps in preventing mistakes in annual financial reports at an earlier stage.
Also, the company’s management will be able to design the internal controls as well as necessary control procedures based on the interim reports. Doing so would help to improve the company’s compliance with the accounting policies and framework. For companies that are made up of different types of businesses from various sectors, interim reports would be useful as they can use these reports to trace whether the short-term measures they have taken align with their long-term strategies.
However, generating interim reports have some downsides too. As interim reports emphasise on short-term outcomes, these reports may not show a clear picture of the financial health of the business (Also see How a Good Accountant will Help Your Business to Grow and Save You Money?), and the information may even be distorted. This can cause confusion and can be harmful to investors and management. Also, as there is no regulatory framework that specifies the disclosure requirements for interim reporting, the company can be uncertain about the extent to which it should disclose the information.
Furthermore, the company may incur some of the expenses in a quarter, and it will only earn relative advantages in the coming quarters. Such expenses include those that the company spends on maintenance, repairs, advertising and so on. Even though these expenses can be quite beneficial to the company in the long run, they may cause misrepresentation of the company’s financial status for a particular quarter.