ASIC Focus Areas for Year End Financial Reports

ASIC Focus Areas GREY2
7
Nov

ASIC Focus Areas for Year End Financial Reports

07.11.14

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:

 

ASSET VALUES

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.

 

ACCOUNTING POLICY CHOICES

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.

 

MATERIAL DISCLOSURES

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.

 

THE ROLE OF DIRECTORS

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:

  • have a culture focused on quality financial reporting
  • have adequate governance arrangements, and processes and controls
  • ensure the financial literacy of directors is appropriate
  • apply the accounting standards
  • apply appropriate experience and expertise to financial reporting, and the underlying processes supporting the information in the financial report, including engaging external experts where appropriate, and
  • consider accountability and internal incentives for company management that are focused on financial reporting quality.

 

For further information please call your ESV Engagement Partner on 9283 1666 to arrange a consultation.

 

Article by Lisa Brink