13 This is consistent with the basic concept set out in paragraph 28 that the same accounting recognition and measurement principles should be applied in an interim financial report as are applied in annual financial statements. Income taxes are assessed on an annual basis. Interim period income tax expense is calculated by applying to an interim period's pre-tax income the tax rate that would be applicable to expected total annual earnings, that is, the estimated average annual effective income tax rate. That estimated average annual rate would reflect a blend of the progressive tax rate structure expected to be applicable to the full year's earnings including enacted or substantively enacted changes in the income tax rates scheduled to take effect later in the financial year. IAS 12, Income Taxes, provides guidance on substantively enacted changes in tax rates. The estimated average annual income tax rate would be re-estimated on a year-to-date basis, consistent with paragraph 28 of this Standard. Paragraph16(d) requires disclosure of a significant change in estimate.

11 An enterprise's budget may include certain costs expected to be incurred irregularly during the financial year, such as charitable contributions and employee training costs. Those costs generally are discretionary even though they are planned and tend to recur from year to year. Recognising an obligation at an interim financial reporting date for such costs that have not yet been incurred generally is not consistent with the definition of a liability.
Measuring Interim Income Tax Expense
12 Interim period income tax expense is accrued using the tax rate that would be applicable to expected total annual earnings, that is, the estimated average annual effective income tax rate applied to the pre-tax income of the interim period.

10 Accumulating compensated absences are those that are carried forward and can be used in future periods if the current period's entitlement is not used in full. IAS 19, Employee Benefits, requires that an enterprise measure the expected cost of and obligation for accumulating compensated absences at the amount the enterprise expects to pay as a result of the unused entitlement that has accumulated at the balance sheet date. That principle is also applied at interim financial reporting dates. Conversely, an enterprise recognises no expense or liability for non-accumulating compensated absences at an interim reporting date, just as it recognises none at an annual reporting date.
Other Planned but Irregularly Occurring Costs

Intangible Assets
8 An enterprise will apply the definition and recognition criteria for an intangible asset in the same way in an interim period as in an annual period. Costs incurred before the recognition criteria for an intangible asset are met are recognised as an expense. Costs incurred after the specific point in time at which the criteria are met are recognised as part of the cost of an intangible asset. "Deferring" costs as assets in an interim balance sheet in the hope that the recognition criteria will be met later in the financial year is not justified.
Pensions
9 Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determined pension cost rate at the end of the prior financial year, adjusted for significant market fluctuations since that time and for significant curtailments, settlements, or other significant one-time events.

Vacations, Holidays, and Other Short-term Compensated Absences

6 A bonus is anticipated for interim reporting purposes if, and only if, (a) the bonus is a legal obligation or past practice would make the bonus a constructive obligation for which the enterprise has no realistic alternative but to make the payments, and (b) a reliable estimate of the obligation can be made. IAS 19, Employee Benefits, provides guidance.
Contingent Lease Payments
7 Contingent lease payments can be an example of a legal or constructive obligation that are recognised as a liability. If a lease provides for contingent payments based on the lessee achieving a certain level of annual sales, an obligation can arise in the interim periods of the financial year before the required annual level of sales has been achieved, if that required level of sales is expected to be achieved and the enterprise, therefore, has no realistic alternative but to make the future lease payment.

4 This Standard requires that an enterprise apply the same criteria for recognising and measuring a provision at an interim date as it would at the end of its financial year. The existence or non-existence of an obligation to transfer benefits is not a function of the length of the reporting period. It is a question of fact.
Year-End Bonuses
5 The nature of year-end bonuses varies widely. Some are earned simply by continued employment during a time period. Some bonuses are earned based on a monthly, quarterly, or annual measure of operating result. They may be purely discretionary, contractual, or based on years of historical precedent.

Major Planned Periodic Maintenance or Overhaul
2 The cost of a planned major periodic maintenance or overhaul or other seasonal expenditure that is expected to occur late in the year is not anticipated for interim reporting purposes unless an event has caused the enterprise to have a legal or constructive obligation. The mere intention or necessity to incur expenditure related to the future is not sufficient to give rise to an obligation.
Provisions
3 A provision is recognised when an enterprise has no realistic alternative but to make a transfer of economic benefits as a result of an event that has created a legal or constructive obligation. The amount of the obligation is adjusted upward or downward, with a corresponding loss or gain recognised in the income statement, if the enterprise's best estimate of the amount of the obligation changes.

Appendix B - Examples of Applying the Recognition and Measurement Principles
This Appendix, which is illustrative and does not form part of the Standard, provides examples of applying the general recognition and measurement principles set out in paragraphs 28-39 of this Standard. The purpose of the appendix is to illustrate the application of the Standard to assist in clarifying its meaning.
Employer Payroll Taxes and Insurance Contributions
1 If employer payroll taxes or contributions to government-sponsored insurance funds are assessed on an annual basis, the employer's related expense is recognised in interim periods using an estimated average annual effective payroll tax or contribution rate, even though a large portion of the payments may be made early in the financial year. A common example is an employer payroll tax or insurance contribution that is imposed up to a certain maximum level of earnings per employee. For higher income employees, the maximum income is reached before the end of the financial year, and the employer makes no further payments through the end of the year.

Appendix A - Illustration of Periods Required to Be Presented
This Appendix, which is illustrative and does not form part of the Standard, provides examples to illustrate application of the principle in paragraph 20. The purpose of the appendix is to illustrate the application of the Standard to assist in clarifying its meaning.
Enterprise Publishes Interim Financial Reports Half-Yearly
1 The enterprise's financial year ends 31 December (calendar year). The enterprise will present the following financial statements (condensed or complete) in its half-yearly interim financial report as of 30 June 2001:
Balance Sheet:
At 30 June 2001 31 December 2000
Income Statement:
6 months ending 30 June 2001 30 June 2000
Cash Flow Statement:
6 months ending 30 June 2001 30 June 2000
Statement of Changes in
Equity:
6 months ending 30 June 2001 30 June 2000
Enterprise Publishes Interim Financial Reports Quarterly
2 The enterprise's financial year ends 31 December (calendar year). The enterprise will present the following financial statements (condensed or complete) in its quarterly interim financial report as of 30 June 2001:
Balance Sheet:
At 30 June 2001 31 December 2000
Income Statement:
6 months ending 30 June 2001 30 June 2000
3 months ending 30 June 2001 30 June 2000
Cash Flow Statement:
6 months ending 30 June 2001 30 June 2000
Statement of Changes in
Equity:
6 months ending 30 June 2001 30 June 2000

45 To allow accounting changes to be reflected as of an interim date within the financial year would allow two differing accounting policies to be applied to a particular class of transactions within a single financial year. The result would be interim allocation difficulties, obscured operating results, and complicated analysis and understandability of interim period information.
Effective Date
46 This International Accounting Standard becomes operative for financial statements covering periods beginning on or after 1 January 1999. Earlier application is encouraged.