ASIC released it focus areas for 30 June 2018. While focus areas are consistent to prior reporting periods, ASIC called on companies to specifically pay attention to the major new accounting standards that could materially affect reported assets, liabilities and performance.
ASIC has released its areas of focus for 30 June 2018 reporting. All preparers (listed and unlisted) should ensure all relevant aspects are addressed.
In announcing its focus areas for the 30 June 2018 reporting period ASIC has, not unexpectedly, emphasised disclosures around the impacts of the new accounting standards that could potentially have a material impact on the reported assets, liabilities, and performance of an entity.
ASIC’s commentary is not only around the disclosures of impacts in the financial statements, but also around the consistency of forecasts relating to performance into 2018/19 – which will need to be in accordance with the basis of the new standards.
ASIC emphasises that the new standards could have impacts beyond the financial statements and could impact areas such as debt covenants, regulatory financial condition requirements, remuneration schemes and the ability to pay dividends; as well as require new systems and processes.
ASIC has come out boldly, stating that it is reasonable for investors and other users of financial statements to expect disclosures of the quantitative impacts of:
ASIC also highlights considering the potential impact of the IASB’s revised Conceptual Framework for Financial Reporting (Framework), effective from 1 January 2020, where an entity has used the Framework to account for transactions that that are not covered directly by one of the current accounting standards. As the AASB is yet to adopt the Framework in Australia, this consideration is relevant where IFRS compliance is claimed.
“In these circumstances an entity would make reference to the definitions of assets, liabilities, revenues and expenses in the Framework to determine how to account for a particular transaction. Relatively speaking this will only impact a small number of entities. The Framework does not override existing accounting standards. Whatever the IASB may do in the future to amend accounting standards to make them consistent with the revised Framework will only need to be considered in the future.”
The new revenue and financial instrument standards are effective for half-years ending 30 June 2018. The financial performance and financial position of entities will be directly affected by the implementation of these two standards.
An entity needs to disclose sufficient information for the user of the financial statements to understand the change compared to the prior year. In addition, if accounting policies have changed from the last annual reporting period, a description of the nature and effect of the change are required to be disclosed in the half-year financial statements.
“We expect that entities will include at a minimum the transition adjustments, the method of transition; and where relevant details of the practical expedients used on adoption to the new standards. We also expect that entities will include their new accounting policies under both new standards, and whilst these may not be as extensive as the annual disclosures, users should be able to understand how financial assets, financial liabilities, interest income, interest expenses and revenue are being recognised in the half-year financial statements.”
ASIC has specifically announced that it will review a selection of half-year reports to survey compliance with the new standards.
Apart from a greater emphasis on the new accounting standards, the focus areas are consistent to prior reporting periods. ASIC has confirmed that its focus areas will, once again centre on:
Further details are outlined in the Appendix – ASIC focus areas: Guide for directors and preparers (PDF 265.5KB)
ASIC again reminds directors of their primary responsibility for the quality of the financial report. Timely information that is well documented and supported, and been through appropriate analysis will promote high quality financial information being available to the market. Having access to appropriate expertise, especially in areas of complexity and judgement; is critical to achieving this quality.
ASIC also suggests that the Operating and Financial Review (OFR) required by listed companies provides a platform for directors to consider including relevant information relating to current challenges facing companies. These include digital disruption, new technologies, climate change or cyber-security. ASIC highlights that information relevant under integrated reporting, sustainability reporting or the recommendations of the Task Force on Climate related Financial Disclosures may be worthy for inclusion in the OFR.
ASIC continues to monitor compliance with lodgement obligations and wrote to over 1,000 proprietary companies that appeared to be large that had not lodged financial statements, and did not have a reporting exemption. It expects to write to several hundred more companies later in the year. Although focused on listed entities, ASIC also reviews financial reports of proprietary companies based on complaints and other intelligence.