ASIC’s 30 June focus areas

In keeping with ASIC’s enduring financial-reporting focus areas (see Appendix 1: ASIC’s ‘enduring’ focus areas for financial reporting adapted for NFPs), the commission will monitor financial-report preparers’ major judgements. They are predominantly in revenue recognition, assessment of asset impairment, and recognition and measurement of financial instruments.

Refreshing 30 June valuations is a must-do. ASIC expects professionals to challenge assumptions and refresh valuations to ensure that they are based on realistic and supportable inputs. They should ensure that financial reporting, audit, and assurance practices support 30 June valuations.

Appropriate experience and expertise should be applied in reporting, particularly in more difficult and complex areas, such as asset valuations, provisions, revenue arising from contracts with customers, capitalisation of expenditure, expected credit losses and other estimates, the impact of post-balance-date events, and disclosure.

The basis and circumstances related to management’s judgements on accounting estimates and forward-looking information should be documented at the time and disclosed in financial reports.

Appendix 1: ASIC’s ‘enduring’ focus areas for financial reporting adapted for NFPs
Area
 Consideration
Revenue
 Directors and auditors should review an entity’s revenue recognition policies to ensure that:
  • Revenue and deferred revenue are recognised in accordance with the substance of the underlying transactions and the satisfaction of performance obligations,
  • Judgements and assumptions used in revenue models are appropriate and reasonable, and
  • Disclosure of revenue policies is not boilerplate and is appropriate for each material revenue stream.
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 testing for other non-financial assets.

The valuation method used for impairment testing should be appropriate, use reasonable and supportable assumptions, and be cross-checked for reliability using other relevant methods.

Disclosure of estimation uncertainties, changing key assumptions, and sensitivity analysis or information on probability-weighted scenarios must be sufficiently detailed for users to understand the judgements applied.
Values of property
 Factors that could adversely affect property values should be considered, such as changes in office-space requirements of tenants, future economic or industry impacts on tenants, and the financial condition of tenants.

The lease-accounting requirements and the impairment of lessee right-of-use assets.
Expected 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.

Ensuring the accuracy of ageing of receivables.

Using forward-looking assumptions and not assuming recent debts will all be collectible.

The extent to which history of credit losses remains relevant in assessing ECLs.

Whether possible future losses have been adequately factored in, using probability-weighted scenarios, as necessary.

Disclosure of estimation uncertainties and key assumptions.
Financial-asset classification
 Financial assets are appropriately measured at amortised cost, fair value through other comprehensive income or fair value through profit and loss.

Criteria for using amortised cost include whether both:
  • Assets are held in a business model whose objective is to hold the assets to collect contractual cash flows, and
  • Contractual terms give rise on specific dates to cash flows that are solely payments of principal and interest on the principal outstanding.
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.

The value of investments in unlisted entities.
Provisions
 The need for and adequacy of provisions for matters such as onerous contracts, leased property make-good, financial guarantees given and restructuring.
Subsequent events
 Events 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 considerations
 Directors and preparers should put themselves in the shoes of users of financial statements and consider what information users 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.
Disclosures in the financial report
 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. This will assist users in understanding the approach taken, understanding potential future impacts and making comparisons among NFPs.

The appropriate classification of assets and liabilities between current and non-current categories on the statement of financial position should be considered. This may have regard to matters such as maturity dates, payment terms, and compliance with debt covenants.

 


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