Directors take note: ASIC's 30 June 2015 targets
ASIC has announced its focus areas for 30 June 2015 financial reports for listed entities and other entities of public interest with many stakeholders. ASIC stressed that directors and auditors should continue to focus on values of assets and accounting policy choices.
ASIC noted that it continues to see instances where companies have used unrealistic assumptions in testing the value of assets or have applied inappropriate accounting choices in areas such as revenue recognition. Preparers and auditors should carefully consider the need to impair goodwill and other assets. 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.
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 notes that 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. Directors should particularly seek advice where a treatment does not reflect their understanding of the substance of an arrangement. Further information can be found in ASIC Information Sheet 183 ‘Directors and financial reporting’.
Watch for an information sheet on impairment of nonfinancial assets that ASIC intends to issue before 30 June.
Finally, ASIC will continue to review the financial reports of proprietary companies and unlisted public companies based on complaints and other intelligence. ASIC will also proactively identify and follow up companies that are required to lodge financial reports with ASIC but have not done so.