11(a). Frequency of interim reporting
Leading view
The optimal period for interim reporting is quarterly.
* Quarterly interim information is needed and used primarily as an early warning or predictive indicator [p. 1-5]
* Anything shorter than quarterly would contain too much "noise" or static [p. 8-9] and anything longer would not be timely enough and could worsen the insider trading problem [p. 2-4]. Quarterly interim reporting is a long enough period of time to identify and analyze trends [p. 9-10]
* Notwithstanding their preference for quarterly interim reporting, users still want immediate disclosures of important events occurring between interim reports [p. 1].
11(b). Periods covered by financial statements
Leading view
Interim information should be provided for each quarter of the reporting year.
* Users strongly favor the presentation of separate fourth quarter interim information [p. 1, 3-5].
Interim information should also be presented on a cumulative basis.
* Some users prefer "rolling twelve months" information over cumulative year-to-date information because it facilitates comparisons among companies [p. 2]
* Other users believe cumulative year-to-date interim information is preferable to rolling twelve months information because it is not affected by the previous year's year-end adjustments [p. 2, section 11(c), p. 11, 13].
11(c). Content of financial statements and related disclosures
Leading view
More interim information than is currently provided is needed but not necessarily as much as is provided in full financial statements.
* Users are particularly interested in getting more interim segment information [p. 2, 5, 7-8, 11, 13- 14] and an interim cash flow statement [p. 3, 6]. Other suggested information to be provided in interim reports include: key captions of the balance sheet, income statement, and cash flow statement [p. 14], standardized debt and book value ratios [p. 2], and backlog information for a contractor [p. 9].
Alternative view
Full financial statements should be provided in interim reports rather than summarized information.
* This view is supported more by investors than by creditors [p. 3-4, 10-13].
11(d). Integral and discrete approach
Note: The views and supporting arguments set forth in this section should be considered with caution. The Subcommittee believes that the comments made on this topic by most of the users surveyed partly reflect a lack of complete understanding of the technical accounting distinctions between the two approaches.
Leading view
The integral approach to interim reporting is preferable to the discrete approach, particularly if combined with adequate interim cash flow information.
* The integral approach is preferable because it deals better with "annual" items such as management bonus awards and income taxes [p. 5, section 11(c), p. 13]. Some users believe that the integral approach is appropriate especially if interim cash flow information is provided because the latter information compensates for the "smoothing" inherent in the integral approach [p. 4-6]. Some users are concerned about favoring the discrete approach because of the potential consequences on management's decisions (that is, management might make "uneconomic" decisions to "manage" the interim numbers under the discrete approach) [p. 4-5].
Alternative view
The discrete approach to interim reporting is preferable to the integral approach, particularly in the absence of adequate interim cash flow information.
* The discrete approach does not allow any "smoothing" of income between interim periods and clearly presents the effects of seasonal variations [p. 1, 3].