Publicly -traded companies are required by the New York Stock Exchange (NYSE) and the Securities and Exchange Commission (SEC) to produce quarterly financial statements for their shareholders. In reality, quarterly reports are published only three times a year. There is no need for the fourth quarter report because the annual report is made at that time.
Quarterly financial statements may resemble an annual report. However, there are some major differences. For various reasons, estimations are made for most key figures on the quarterly reports which are more accurately depicted in the annual report.
For example, it is too costly and time-consuming for a company to take a detailed inventory more than once a year. Therefore, ending inventory for that quarter is only estimated. Another example is the annual tax rate. In quarterly reports, the annual tax rate must be estimated for the purpose of recording the annual tax rate as closely to what the company actually dispenses in taxes.
Another variation from an annual report is seasonality. Seasonality occurs when the data experiences regular and predictable changes every calender year. In some companies, particular quarters typically do better financially than others. In this case, seasonality must be noted on the quarterly financial statement as to alert the shareholder that sales are not level throughout the year.
Quarterly financial statements must also be considered unaudited. The CPA who reviews them is only obligated to make this proclamation: “I do not know of any material changes that must be made to make the statements conform to the Generally Accepted Accounting Principles (GAAP).”