ASIC Announces Areas of Focus for Upcoming Financial Reports by Listed Companies

The Australian Securities and Investments Commission (ASIC) has announced areas of focus for the December 31, 2014 financial reports of listed entities and other entities of public interest with numerous stakeholders.

"Directors and auditors should focus on values of assets and accounting policy choices, which are important to providing meaningful information for investors and everyone else who uses financial reports," said ASIC Commissioner John Price.

Asset Values

The regulator says it “encourages preparers and auditors of financial reports to carefully consider the need to impair goodwill and other assets." Adding, “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." In other words, ASIC is on the lookout for ‘creative’ accounting.

ASIC also says that all submitted reports must meet a high standard, “Fair values attributed to financial assets should also be based on appropriate models, assumptions and inputs. Particular focus should be given to assets of companies in extractive industries and mining support services, as well as asset values that may be affected by digital disruption.”

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," according to an ASIC statement.

The Role of Directors

ASIC says, "Even though directors do not need to be accounting experts, they should seek explanation and professional advice supporting the accounting treatments chosen if needed and, where appropriate, challenge the accounting estimates and treatments applied in the financial report. They should particularly seek advice where a treatment does not reflect their understanding of the substance of an arrangement."

As part of its media release ASIC has provided additional advice and guidelines to Directors of Listed entities on its website.