The focuses are targeted at listed and other entities of public interest with many stakeholders.
ASIC also does review the financial reports of proprietary companies and unlisted public companies on a reactive basis from complaints and other intelligence. As such, the focus areas should be considered by all entities.
There are no significant changes in ASIC’s focus areas for 30 June 2016 from those at 31 December 2015 and 30 June 2015. The focus areas fall into three broad areas being
Further details are outlined in our practical guidance – ASIC areas of focus: Guide for directors and preparers (PDF 99KB).
The choice of accounting policy can affect reported results. ASIC advised that appropriate selection of accounting policies and disclosure of related assumptions and judgements are areas of focus.
In support of the impetus to clearer communication in financial reports, ASIC reinforced this message, confirming that it will focus on material disclosures useful to investors and other users of financial reports. ASIC restated that it does not pursue immaterial disclosures that may add unnecessary clutter to financial reports.
This message is consistent with KPMG’s initiative of cutting the clutter in financial reports by removing non-essential and irrelevant disclosures while still complying with relevant accounting standards and regulatory requirements.
ASIC drew attention once again to asset values and related impairment testing. The value of goodwill and assets in extractive industries and mining support services received specific mention again. Appropriate valuation of inventories, whether accounted for on a cost and net realisable value basis, also received attention this time around.
“Impairment of non-financial assets continues to be a hot topic for companies. Calculations and disclosures are under scrutiny by all stakeholder groups, including ASIC. Determining the appropriate methodology to use, the reliability of assumptions and inputs (both those observable in the market and those that are unobservable) and the extent of financial statement disclosures continues to be a key area of judgement for preparers.”
KPMG Director of Financial Reporting
Even though directors are not required to be accounting experts, ASIC expects that they should seek explanations, involve experts where appropriate, and challenge asset values in the financial report. Our practical guide, ASIC areas of focus: Guide for directors and preparers (PDF 99KB), suggests questions that directors and preparers of financial reports should consider to ensure that they have appropriately addressed ASIC’s concerns.
ASIC took the opportunity to remind Australian financial services licensees that client monies are required to be held in separate, designated trust bank accounts, and applied in accordance with client instructions and the requirements of the Corporations Act.