ASIC has called on companies to focus on giving information for users of financial reports that is useful and meaningful, and to address the impact of major new accounting requirements.
Announcing its focus areas for year-ending 31 December 2017 financial reports of listed entities and other entities of public interest with many stakeholders, ASIC highlighted a number of key areas to address.
ASIC Commissioner John Price commented:
As with previous reporting periods, directors and auditors should focus on values of assets and accounting policy choices. ASIC continues to see companies use unrealistic assumptions in testing the value of assets or applying inappropriate approaches in areas such as revenue recognition.
New requirements for revenue recognition and financial instrument valuation apply from the year that starts from 31 December 2017. So far, surprisingly few companies have made disclosures of the impact of these standards. This may indicate that some companies need to give urgent attention to the immediate impact of the standards on systems, processes and their businesses,’ he added.
As part of ASIC’s Financial Reporting Surveillance Program, financial reports are selected for review, based on risk-based criteria and at random, to determine compliance with the Corporations Act and accounting standards.
The role of directors and management
Directors are primarily responsible for the quality of the financial report. This includes ensuring that management produces quality financial information. Companies must have appropriate processes and records to support information in the financial report rather than simply relying on the independent auditor.
Companies should apply appropriate experience and expertise, particularly in more difficult and complex areas such as accounting estimates (including impairment of non-financial assets), accounting policies (such as revenue recognition) and taxation.
Information should be produced on a timely basis and be supported by appropriate analysis and documentation for the independent audit.