When does my business need an interim report?
7 minute read
If you’re a company owner in Hong Kong, you get to enjoy many benefits, but you also deal with a lot of legality and paperwork as well. If your business is listed and shared on major Hong Kong indexes, you might be required to file an interim report that shows your business’s financial performance.
What is an interim report?
An interim report, also sometimes known as an interim statement, is a financial report Hong Kong companies prepare between annual reports, within a complete fiscal year. These reports can be prepared routinely as quarterly reports, monthly reports, or on an ad hoc basis.
Interim reports represent financial snapshots in which some companies are required to present all relevant information related to their financial stability and health at any point during a single fiscal year. Instead of waiting for the full financial cycle to pass for a company to send out a report, the interim report allows you to get a better view of how your organization handles its finances and operations at any given time.
One of the biggest benefits of interim reports is that they increase a company’s transparency and make communication between the public, shareholders, and team members much clearer.
It’s also important to note that this report isn’t always obligatory.
When is an interim report obligatory?
There are two types of situations when a company should prepare an interim statement:
- If it’s required by law in the country where they are registered.
- If a company’s leaders, management team, or investors are looking to get an accurate picture of the financial results of the company before the financial year ends.
To see if an interim report is required, check the current law and regulations of the place where your company is registered. The requirements will differ based on the type and size of your company, whether it’s traded on stock exchanges, and the applicable accounting regime.
There are certain situations in which preparing an interim report is a smart idea even if it’s not a legal obligation. The biggest reason why most companies do it is to demonstrate the financial position of the business to potential investors.
Does my Hong Kong business require an interim report?
As a business owner, you are obligated to prepare and file your interim report if your company is an entity that is shared on the Main Board or the Growth Enterprise Market (GEM) of the Stock Exchange of Hong Kong (SEHK). If your company falls under that category, you are required by law to file your report on a regular basis.
However, a lot of non-held entities choose to prepare financial reports without any legal obligation, either to keep track of their financial records or to draw in a potential investor. And remember—to file this report, it needs to be in accordance with HKAS 34 Interim Financial Reporting Standards.
Should small businesses prepare interim reports?
Small businesses should prepare timely interim reports when they are seeking out new investors or lenders, even if it’s not mandatory.
An investor doesn’t want to give their money to a company if they don’t have any reason to believe their investment will pay off. A potential new investor will especially be interested in seeing an interim statement in the following situations:
- If the company has reported a major impairment loss in the past.
- If it has recently expanded into new markets.
- In case it needs to prevent bankruptcy and implement a strategy to do so.
- If there is a downturn in the economy or industry.
But this isn’t the only reason why you should prepare interim reports regularly. Business owners who do this have a better chance of uncovering imminent financial problems. This is especially important for small businesses that don’t have enough resources to recover from a bad year or quarter.
Interim reports clearly show data for the activities that cost a lot of money but aren’t producing as high earnings as they should. If small companies manage to prevent cash problems thanks to quarterly reports, the chances of the business failing will be significantly lower.
What is included in an interim report?
There are three important components every interim report needs to have:
- A cash flow statement that describes in what way and in which places the cash flows through the company.
- An income statement that shows data related to the revenues and expenses of the company during one period of time.
- Balance sheets that show a summary of the financial balances of the company.
While not mandatory, companies that file interim reports should also include explanatory notes in their report that can provide a better explanation of the information listed. In the notes, you can include items of data such as stocks, dividends, and regulatory complaints.
The most important thing to include when reporting is all the information that the recipients of the financial report would find relevant and important. For example, if you’re preparing interim reports to show to a potential investor, you should put a lot of focus on the cash flow statements, balance sheets, and shareholders equity.
When is the deadline for interim reports?
Your company’s interim reports should be published depending on where the entity is listed.
For example, entities that are on the Main Board are required to publish their interim reports semi-annually for every financial year. Most entities publish them within three months after their first half-year interim period ends.
On the other hand, entities that are listed on GEM need to publish their financial reports within 45 days after the date the interim period ends.
Another option is to publish quarterly reports, which gives you the option to provide a more consistent view of the operational and financial performance of your company. As the name suggests, quarterly reports get published four times a year, also 45 days after the interim period ends.
You should consider preparing the following information when you’re constructing your interim reports:
- Accounting changes. If there is a change in your accounting estimate or policy, report when it occurred.
- Accounting policies. Use the same policies consistently in your interim statements as the ones you used when constructing the company’s full-year financial statements.
- Cost of goods sold. Either conduct a physical inventory count or use an estimation method to calculate your cost of goods sold.
- Expense recognition. Charge an expenditure to expense during the same period as the revenues they’re related to.
- Market declines. Recognize the loss of any declined market prices for inventory items.
- Materiality. Items that aren’t material to the fiscal year but are to the interim period should be disclosed separately during reporting.
- Retroactive adjustments. Don’t retroactively adjust prior interim periods unless the adjustment’s impact is material to the results of the fiscal year’s continuing operations.
- Seasonal or cyclical revenues. Only when you earn seasonal or cyclical revenues can you disclose them.
- Transaction recognition. Every recognition of a transaction should be based on the result you expect for the entire year, not just the current interim period.
Interim reports are a great resource for financial health, and while reporting them is mandatory for some organizations, that isn’t the case for all Hong Kong companies. However, they are still very important reports, and conducting them regularly will give you a better insight into your company’s financial position than anything else.
If you need any help, Sleek offers very convenient accounting and tax services for clients who are looking to create reports or need any other type of financial help or documents. When you leave the reports to the professionals, you can be sure that everything will go smoothly and according to plan.
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