ASIC, the corporate regulator, has unveiled its hit list of issues for companies balancing their interim and full-year accounts on or around December 31.
In a release this week, the regulator said the issues will be similar for those with June 30 full-year balance dates, with a strong referencing of the impact from the pandemic and lockdowns.
ASIC Commissioner Cathie Armour said in the release that ‘In the current environment, the quality of financial reports and related disclosures is more important than ever for keeping investors informed.”
“Entities with businesses adversely affected by the COVID-19 pandemic should continue to focus on the reporting of asset values and financial position. Investors will expect clear disclosure about the impacts on an entity’s businesses, any risks and uncertainties, key assumptions, management strategies and future prospects.
“Asset values, assumptions and disclosures may be significantly affected by developments or ongoing conditions since an entity’s last half-year financial report at 30 June 2020.”
Under COVID-19 conditions, ASIC expects directors, preparers of financial reports and auditors to pay particular attention to:
– asset values
– provisions
– solvency and going concern assessments
– events occurring after year end and before completing the financial report
– disclosures in the financial report and Operating and Financial Review (OFR).
”Entities may continue to face some uncertainties about future economic and market conditions, and the future impact on their businesses. Assumptions underlying estimates and assessments for financial reporting purposes should be reasonable and supportable. Assumptions should be realistic, and not overly optimistic or pessimistic.
“Useful and meaningful disclosures about the business impacts and potential uncertainties will continue to be vital. Uncertainties may lead to a wider range of valid judgements on asset values and other estimates. Disclosures in the financial report about uncertainties, key assumptions and sensitivity analysis will be important to investors.
“The OFR should complement the financial report and tell the story of how the entity’s businesses are impacted by the COVID-19 pandemic. The underlying drivers of the results and financial position should be explained, as well as risks, management strategies and future prospects.”
“Appropriate experience and expertise should be applied in the reporting and audit processes, particularly in more difficult and complex areas, such as asset values and other estimates.
ASIC said directors and auditors should be given sufficient time to consider reporting issues and to challenge assumptions, estimates and assessments.
“Directors should make appropriate enquiries of management to ensure that key processes and internal controls have operated effectively during periods of remote work.
“Where possible, auditors should be given access to perform key procedures such as stock counts and system walk-throughs on-site rather than remotely.”
ASIC has extended the deadline for both listed and unlisted entities to lodge financial reports under Chapters 2M and 7 of the Corporations Act by one month for certain balance dates up to and including 7 January 2021 balance dates.
Where possible, entities should continue to lodge within the normal statutory deadlines having regard to the information needs of shareholders, creditors and other users of their financial reports, or to meet borrowing covenants or other obligations.
