How
does seasonality affect interim reporting and how should companies overcome the
seasonality problem?
Seasonality affects interim
reports when wide fluctuations in profits occur because off-season sales do not
absorb the company’s fixed costs. These costs often tend to remain fairly
constant regardless of sales or production.
Revenues and expenses must be
recognized and accrued when they are earned or incurred according to IFRS.
Companies can only defer recognition of costs or revenues when it is
appropriate to do so. Deferral of costs is not appropriate unless the costs
meet the definition of an asset. (Instructors Note: ASPE/PE GAAP does not
contain any guidance for reporting segmented information or interim reporting.)
It is difficult to completely overcome the problem of
seasonality, but disclosure as to the nature of the seasonality factors that
face the business and the pattern of revenues and expenses (including
comparative data) may help users of the financial statements to understand
whether seasonality is an adverse issue in any particular case.
