With most of corporate Australia about to rule off their 2017-18 full year or first half (for calendar year balancing companies) on June 30, ASIC has published its annual areas it will be concentrating on in the flood of results expected to start flowing from late July – at the top of the hit list will be the impact of a spate of major accounting changes on results.
In the past ASIC has concentrated on asset values (forcing companies like Nine Entertainment and Seven West Media to check and impair asset values), profit reporting (statutory versus underlying and other non standard measures).
Now the 2017-18 target list looks more substantial given the spread of new accounting rules.
ASIC said it would select the June 30 full year reports from 200 ASX listed companies and a selected (but unknown number of June 30 half year reporting companies) to see how well these conform to the new standards.
In a statement published last week, ASIC on companies to focus on new accounting requirements that can materially affect reported assets, liabilities and profits.
“The introduction of major new accounting standards will have the greatest impact on financial reporting for many companies since the adoption of International Financial Reporting Standards (IFRS) in 2005.
ASIC said the new accounting rules (standards) cover: revenue recognition; financial instrument valuation (including hedge accounting and loan loss provisioning); lease accounting; accounting by insurers; and the definition and recognition criteria for assets, liabilities, income and expenses.
"Full-year reports at 30 June 2018 must disclose the future impact of these new accounting standards. Half-year financial reports at 30 June 2018 must comply with the new requirements for revenue recognition and financial instrument valuation.
ASIC Commissioner John Price said, ‘We are concerned that some companies may not have adequately prepared for the impact of new accounting standards that can significantly affect results reported to the market.’
‘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 impact of the standards on reported results, systems, processes and their businesses,’ he said.
“It is important that directors and management ensure that companies are prepared for these new standards and inform investors and other financial report users of the impact on reported results.
ASIC also pointed to the importance of company boards and managements understanding the changes and accounting rules.
"Directors are primarily responsible for the quality of the financial report. This includes ensuring that management produces quality financial information on a timely basis. Companies must have appropriate processes, records and analysis 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.
ASIC warned reporting companies that they "should disclose information on risks and other matters that may have a material impact on the future financial position or performance of the entity. This could include, for example, matters relating to digital disruption, new technologies, climate change, Brexit or cyber-security.
“Directors may also consider whether it would be worthwhile to disclose additional information that would be relevant under integrated reporting, sustainability reporting or the recommendations of the Task Force on Climate-related Financial Disclosures where that information is not already required for the Operating and Financial Review.
“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 and significant accounting policy choices.”
ASIC said it will not pursue immaterial disclosures that may add unnecessary clutter to financial reports; efforts should be made to communicate information more clearly in financial reports.
