With the reporting season fast approaching, ASIC has released the focus areas it intends to review within business financial reports. Whilst there are limited changes from previous years, ASIC urge preparers to focus on the quality of information they are delivering and have reminded them to ensure they disclose the expected impacts of new accounting standards.
These are areas all businesses should be aware of.
In brief, ASIC highlights the following:
- Disclosures are required for the impact of the new accounting standards (revenue, financial instruments and leases), which may well mean quantification of the impacts of these standards. 30 June 2017 represents the start of the comparative period for the first financial report under some of these new standards
- ASIC continues to see companies use unrealistic assumptions for valuations and/or applied inappropriate approaches to areas such as revenue recognition
- ASIC will not pursue immaterial disclosures such that preparers and auditors can focus on material disclosures to provide meaningful information to users
- Directors are not expected to be accounting experts but should seek explanation and support when the treatment does not reflect their understanding of the substance of the arrangement (this should also be applied to auditors)
The focus areas for June 2017 are:
- Impairment testing and asset values – including intangible and tangible assets.
- Revenue recognition – in accordance with the underlying transaction.
- Expense deferral – only if it meets the definition of an asset.
- Off-balance sheet arrangements – careful review of accounting for joint and structured arrangements.
- Tax accounting.
- Estimates and accounting policy judgements – disclosure of key assumptions and sensitivity analysis.
- Disclosure of the impact of new revenue, financial instruments and leases standards.
ASIC also reminds directors and management that they have the primary responsibility for the quality of the information disclosed in the financial report. Directors and management shouldn’t rely on the auditor to ensure their financial report is useful and meaningful to users. Directors and management know their businesses better than anyone and are best placed to identify what is meaningful to readers of the financial report.
Whilst ASIC doesn’t expect directors to be accounting experts, they should seek explanation and advice on items they don’t fully understand. As such, directors and management will need to be accounting experts to understand the substance of the transaction. If the report doesn’t reflect the substance, then they should discuss and challenge the estimates and judgements that have gone into that treatment.
Don’t forget, ASIC reviews the financial reports of proprietary companies and unlisted public companies, based on complaints and other intelligence. In addition, ASIC proactively identifies and follows up where companies do not meet their obligation to lodge their reports.
You can read the full media release and ASIC focus areas here
If you seek any further clarity or guidance around these changes and what they mean to you, we encourage you to contact your local Crowe Horwath adviser for more information.
By Kevin Frohbus
Technical Director – IFRS Advisory and Audit Quality
Family Office Service Offering
Self Managed Super Fund
Audit and Assurance
Global Business Desk