By Steve Bradby
31 July 2019
In mid-June ASIC issued its views on the matters that financial report preparers, Directors, management and auditors should consider of highest priority in the 30 June 2019 financial reporting cycle (through its 19-143 Major financial reporting changes and other focuses), calling on companies to focus on new requirements that can materially affect reported assets, liabilities and profits.
The views remain relatively consistent with those of previous advisories, released biannually by ASIC. However, the current release serves as a reminder to all 30 June 2019 financial report preparers that they adopt the full application of significant new accounting standards on revenue recognition and financial instrument values. Our clients and contacts will be aware that the impacts ought to have been considered – and necessary adjustments made – with effect from 1 July 2018 (indeed for some, from 1 January 2018). ASIC highlights that “new accounting standards can significantly affect results reported to the market by companies, require changes to systems and processes, and affect businesses”.
This indicates that ASIC focuses its attention on listed companies and other entities of public interest that ‘report to the market’. While true, we encourage our broader client and contact community to consider ASIC’s views as important to the breadth of the financial reporting obligations of that community.
We refer readers to our which discussed the AASB project to change the ‘conceptual framework’. This will, in turn, see the end of ‘special purpose financial statements’ for those required to prepare financial reports in accordance with accounting standards. Changes requiring them to be prepared as general purpose financial reports (albeit with the opportunity to utilise a reduced level of disclosure) will likely commence for reporting periods ending 31 December 2021 and 30 June 2022. Our advice is therefore that the preparers of all statutory financial reports be cognisant of the matters that ASIC (and PKF) believe should be of focus in financial statement preparation.
Those of heightened current focus are:
- Impact of new accounting standards – AASB 9 Financial Instruments, AASB 15 Revenue from Contracts with Customers apply from years commencing 1 January 2018 and AASB 16 Leases applies from years commencing 1 January 2019, meaning that its impact must be disclosed in 30 June 2019 financial reports.
- Impairment testing and asset values – assessing the recoverability of the carrying amounts of assets such as goodwill, other intangibles and property, plant and equipment generally involve significant management judgement and estimation, their responsible challenge by Directors, and the scrutiny of the auditor.
- Accounting policy choices – policies affecting reported results are most critical, including revenue recognition, cost capitalisation, and impending policy changes arising from the new standards.
- Tax accounting – a proper understanding of both tax and accounting treatments drives how differences between the two affect tax assets, liabilities and expenses.
- Material disclosures – immaterial disclosures that may add unnecessary clutter do not concern ASIC; there is a focus on material information useful to users.
Your local PKF contacts are ready to provide further guidance in relation to the above-noted focus areas.
Footnote: Readers may be interested to review and comment on ASIC’s recently released SPFR-related Exposure Draft Amendments to Australian Accounting Standards – Disclosure in Special Purpose Financial Statements of Compliance with Recognition and Measurement Requirements.