ASIC Focus Areas for Year End Financial Reports

KSV 7
9
Jun

ASIC Focus Areas for Year End Financial Reports

09.06.15

ASIC has recently issued a media release highlighting several important areas of focus for boards and those responsible for preparing 30 June 2015 financial reports. The ASIC Commissioner affirmed a resounding issue is companies using unrealistic assumptions to test the value of assets or applying inappropriate accounting choices in areas like revenue recognition.

 

Listed below are the 7 ASIC focus areas for 30 June 2015.

 

1. IMPAIRMENT TESTING AND ASSET VALUES

The most significant area of focus outlined by ASIC is the recoverability of carrying amounts of assets such as goodwill, other intangibles and property, plant and equipment.  ASIC emphasises the importance for directors to ensure:

  • cash flows and assumptions used are reasonable, mainly if prior period projections have not been met,
  • discounted cash flows are not used to work out fair value less costs to sell in cases where forecasts and assumptions are not reliable enough,
  • the cash flows used are matched appropriately to the assets that generate those cash flows,
  • suitable discount rates are used, and
  • cash generating units are not identified at too high a level. 

 

2. OFF-BALANCE SHEET ARRANGEMENTS

Careful consideration should be made for off-balance sheet arrangements, the accounting for joint arrangements and disclosures of structured entities.

 

3. REVENUE RECOGNITION

Directors and auditors should review the revenue recognition policies of entities to make sure that revenue is recognised in line with the underlying transactions. ASIC also indicated that the timing of revenue recognition would need to be carefully considered in industries with complex sale and licensing arrangements that include continuing obligations.

 

4. EXPENSE DEFERRAL

Directors and auditors should make sure expenses are only deferred when there is an asset, future economic benefits are likely to arise and the requirements of the intangibles accounting standard are met.

 

5. TAX ACCOUNTING

Financial report preparers should make sure that tax and accounting treatments have been understood, the impact of recent legislative changes have been considered, and the recoverability of deferred tax assets has been appropriately reviewed.

 

6. GOOD DISCLOSURE OF ESTIMATES AND ACCOUNTING POLICY JUDGMENTS

Disclosures regarding the appropriateness of key accounting policy choices and sources of estimation uncertainty were stressed as being an area of focus.

 

7. DISCLOSURE OF THE IMPACT OF THE NEW REVENUE AND FINANCIAL INSTRUMENTS STANDARDS

Directors and auditors must disclose the impact of new requirements for revenue recognition and valuing financial instruments on the entity’s future financial position and results. 

 

The key takeaway for directors and management is to proceed with caution by getting the professional support and advice tailored to your individual circumstances. 

 

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

Article by Lisa Brink