ASIC highlights key reporting areas

The Australian Securities & Investments Commission is urging directors, report preparers, and auditors to assess whether financial reports provide useful and meaningful information.

The commission has highlighted key areas for companies to get right for the 30 June year-end.  While NFPs have not been specifically mentioned, many of the focus areas are relevant to them.

Among them are asset values, provisions, solvency, and going-concern assessments. Events occurring after year-end and before completing reports will also be examined.

Companies may continue to face uncertainties about future economic and market conditions – assumptions underlying estimates and assessments for reporting purposes should be reasonable and supportable.

Directors and management should assess how current and future company performances, the value of assets, provisions, and business strategies might be affected by changing circumstances, uncertainties, and risks such as:

  • COVID-19 conditions and restrictions
  • Use of virtual meetings and more flexible working arrangements
  • The discontinuation of financial and other support from governments, lenders, and lessors, including possible increases in insolvency levels
  • The availability of skilled staff and expertise
  • Restrictions to deal with COVID-19 in different jurisdictions, and
  • The impact of rising interest rates on future cash-flows and on discount rates used in valuing assets and liabilities.

Uncertainties might lead to a wider range of valid judgements on asset values and other estimates. Uncertainties might also change. Disclosures in financial reports about uncertainties, key assumptions, and sensitivity analysis will be important.

Appropriate experience and expertise should be applied in reporting and auditing, particularly in more difficult and complex areas such as asset values and other estimates, ASIC says.

Directors and auditors should be given sufficient time to consider reporting issues and to challenge assumptions, estimates, and assessments.

They should make appropriate enquiries of management to ensure that key processes and internal controls have operated effectively during periods of remote work.

The circumstances in which judgements on accounting estimates and forward-looking information have been made and the basis for those judgements should be properly documented and disclosed as appropriate, the commission says.

For details about NFP-relevant areas see Appendix: ASIC focus areas for 30 June – relevant to NFPs.

Appendix: ASIC focus areas for 30 June – relevant to NFPs

Focus area
Impairment of non-financial assets
Goodwill, indefinite useful life intangible assets and intangible assets not yet available for use must be tested annually for impairment. Entities adversely impacted in the current environment may have new or continuing indicators of impairment that require impairment testing for other non-financial assets.

The appropriateness of key assumptions supporting the recoverable amount of non-financial assets.

Disclosure of estimation uncertainties, changing key assumptions, and sensitivity analysis or information on probability-weighted scenarios.
Values of property assets
Factors that could adversely affect commercial and residential property values should be considered such as changes in office space requirements of tenants, on-line shopping trends, future economic or industry impacts on tenants, the financial condition of tenants and restructured lease agreements.
The lease accounting requirements, the treatment of rental concessions by lessors and lessees, and the impairment of lessee right-of-use assets.
ECLs credit losses on loans and receivables
Whether key assumptions used in determining expected credit losses are reasonable and supportable.
Any need for more reliable and up-to-date information about the circumstances of borrowers and debtors.
Short-term liquidity issues, financial condition and earning capacity of borrowers and debtors.
The extent to which past history of credit losses remains relevant in assessing expected credit losses.
Disclosure of estimation uncertainties and key assumptions.
Value of other assets
The net realisable value of inventories, including whether all estimated costs of completion and necessary to make the sale have been considered in determining net realisable value.
Whether it is probable that deferred tax assets will be realised.
The value of investments in unlisted entities.
Consideration should be given to the need for and adequacy of provisions for matters such as onerous contracts, leased property make-good, mine-site restoration, financial guarantees given and restructuring.
Subsequent events
Events occurring after year-end and before completing the financial report should be reviewed as to whether they affect assets, liabilities, income or expenses at year-end or relate to new conditions requiring disclosure.
Disclosure – general
When considering the information that should be disclosed in the financial report, directors and preparers should put themselves in the shoes of users and consider what information investors would want to know.
Disclosures should be specific to the circumstances of the entity and its businesses, assets, financial position, and performance.
Changes from the previous period should be considered and disclosed.
Financial report disclosures
Uncertainties may lead to a wider range of valid judgements on asset values and estimates. The financial report should disclose uncertainties, changing key assumptions and sensitivities. Explain where uncertainties have changed since the previous full-year.
The appropriate classification of assets and liabilities between current and non-current categories on the statement of financial position should be considered. That may have regard to matters such as maturity dates, payment terms, and compliance with debt covenants.
Assistance and support from others
Entities should appropriately account for each type of support and assistance from government, lenders, landlords, and others during the reporting period. Material amounts should be disclosed with the duration of the support or assistance, and any impact from its discontinuation.
Consideration of whether off-balance-sheet exposures should be recognised on balance sheet, such as interests in non-consolidated entities.
In relation to aged-care providers, review of the treatment of aged-care bed licences following the announcement in May 2021 that the licences will be discontinued on 1 July 2024 and subsequent information from the Department of Health.