With the reporting season upon us, ASIC has revealed its focus areas for reviewing financial reports. Whilst there are not a lot of changes, ASIC continues to urge preparers to focus on the quality of information in reports and disclose any expected impacts of new accounting standards. The release of ASIC’s focus areas for December 2017 is a timely reminder for preparers of financial reports to focus on the quality of meaningful financial reporting.
The focus areas continue to include the usual suspects that we’ve seen for the past few reporting periods, showing that ASIC are still identifying issues with fundamental items such as impairment and revenue recognition.
The new accounting standards for revenue recognition will soon be effective, but that doesn’t mean existing policies and procedures can be ignored. It’s important to ensure that revenue is recognised as and when services are performed.
ASIC reminds directors and auditors of the importance of using reasonable cash flows and assumptions in the preparation of impairment models, as well as applying the correct model to determine recoverable amount. It’s important to ensure appropriate levels of aggregation and disaggregation are applied and that rates and assumptions differ when risks differ between cash generating units (assets generating cash flow).
ASIC also reminds preparers of the looming effective date for the new revenue, financial instruments and leases standards. December reporters adopting a full retrospective approach will need to be preparing financial information under AASB/IFRS 15 and AASB/IFRS 9 from 1 January 2017. As a result, entities should be in a position to inform investors and other users of the quantitative impact of the new standards in their December 2017 reports.
ASIC focus areas for December 2017 financial reports are:
1. Impairment testing and asset values
2. Revenue recognition
3. Expense deferral
4. Off-balance sheet arrangements
5. Tax accounting
6. Estimates and accounting policy judgements
7. Impact of new revenue, financial instrument, lease and insurance standards
Read ASIC’s media release 17-423MR for full details on the focus areas for December 2017. The release also includes links to information sheets providing useful information for preparers and directors on financial reporting and impairment of non-financial assets.
By Christine Webb, IFRS Technical Manager