ASIC’s latest wish list for financial reporting improvements covers focus areas that have remained on ASIC’s radar for some years now. The list includes impairment and asset recognition, accounting policy choice, revenue and expense recognition and disclosures including disclosure of the impact of new accounting standards.
ASIC highlights the duties of directors in respect of information provided through financial reports. It recommends that while directors are not required to be accounting experts, professional advice and explanations should be sought in respect of accounting treatments, and they should challenge accounting estimates and treatments applied.
Care is needed in ensuring cash flows and assumptions used in impairment calculations are reasonable and supportable. Companies in the extractive industries, those providing support services to extractive industries and those vulnerable to the risk of digital disruption (including the risk of losing market-share from online competitors) are advised to take particular care when measuring and determining asset values. Financial report preparers and auditors should also pay attention to the fair value measurement requirements for assets set out in AASB 13 Fair Value Measurement.
In June this year, ASIC stated its intent to make a public announcement when companies make material changes to information included in financial reports (and other information provided to the market) following contact from ASIC. It is notable that the announcements made by ASIC since, relate to adjustments made by companies for impairment calculations and recognition of assets. View ASIC media releases.
Accounting policy choices made in respect of off-balance sheet arrangements is another focus area for ASIC. The requirements of AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements and AASB 12 Disclosures of Interests in Other Entities should be considered by entities when determining the correct accounting treatment for off-balance sheet arrangements.
ASIC continues to remain sensitive to the accounting policy choices companies make when recognising revenue, as the appropriate application of the requirements including the timing of recognition and reflecting the substance of underlying transactions, are critical for a suitable revenue recognition policy.
Companies that state compliance with IFRS in their financial statements, and their auditors should pay attention to the potential impact of applying the new accounting standard IFRS 15 Revenue from Contracts with Customers and make appropriate disclosures if required. . IFRS 15 was issued by the International Accounting Standards Board in May 2014, with an application date set for accounting periods beginning on or after 1 January 2017 (a copy of IFRS 15 can be obtained from CPA Library). The Australian Accounting Standards Board’s work program indicates that the Australian version of IFRS 15 will be issued in quarter 4 of 2014.
Key stakeholders in the financial reporting process continue to observe that financial reports remain complex and various projects are under way across the globe to explore how complexity in financial reports can be reduced. In acknowledgement of this complexity issue, ASIC states that it does not pursue immaterial disclosures that may add to unnecessary clutter in financial reports.
View ASIC’s full report.