ASIC Focus Areas for Year End Financial Reports
On 7 November 2014 ASIC announced its focus areas for 31 December 2014 financial reports (14-294MR). ASIC’s surveillance program is targeted at listed entities and other entities of public interest, with a large number and wide range of stakeholders. In conducting their review they will focus on the following key areas, similar to those raised for 30 June 2014:
ASIC encourages preparers and auditors of financial reports to carefully consider the need to impair goodwill and other assets. ASIC continues to find impairment calculations that use unrealistic cash flows and assumptions, as well as material mismatches between the cash flows used and the assets being tested for impairment.
Fair values attributed to financial assets should also be based on appropriate models, assumptions and inputs.
Preparers and auditors should focus on the appropriateness of key accounting policy choices that can significantly affect reported results. These include off-balance sheet arrangements, revenue recognition, expensing of costs that should not be included in asset values, and tax accounting.
ASIC’s surveillance continues to focus on material disclosures of information useful to investors and others using financial reports, such as assumptions supporting accounting estimates, significant accounting policy choices, and the impact of new reporting requirements. ASIC does not pursue immaterial disclosures that may add unnecessary clutter to financial reports.
Even though directors do not need to be accounting experts, they should challenge the accounting estimates and treatments applied in the financial report, seek explanations and seek appropriate professional advice supporting the accounting treatments chosen, particularly where a treatment doesn't reflect their understanding of the substance of an arrangement.
Although calculations supporting impairment or valuation of significant assets can be complex, directors should review the cash flows and assumptions used in the calculations prepared by management or experts, bearing in mind their knowledge of the business, its assets, and the future prospects of the business.
To ensure that financial reports are of high quality, and that useful and meaningful information is provided to users of financial reports, entities should:
For further information please call your ESV Engagement Partner on 9283 1666 to arrange a consultation.
Article by Lisa Brink