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ASIC outlines June 2013 focus areas, outcomes of recent reviews

  • ASIC (Australian Securities and Investments Commission) (dk gray) Image

02 Jul 2013

The Australian Securities and Investments Commission (ASIC) has released its areas of focus for 30 June 2013 financial reports, along with the outcomes of its reviews financial reports of 31 December 2012 financial reports.

ASIC generally issues its focus areas each six months, and there is often a lot of consistency in the focus areas from period to period. The current period focus areas are:

  • Disclosure in the operating and financial review (OFR) - ASIC expects entities to consider ASIC Regulatory Guide RG 247 Effective disclosure in an operating and financial review, which was issued in March 2013
  • Off-balance sheet arrangements and new standards - With AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements and AASB 13 Fair Value Measurement applying for the first time to annual reporting periods beginning on or after 1 January 2013, ASIC expects entities either fully comply with the new standards in full (for December year end entities), or that they provide "meaningful note disclosure information for investors about the impact of the new standards as discussed in AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors", including qualitative information on the impacts. Furthermore, ASIC notes that where it is "unclear as to whether an entity must be consolidated, the impact of both consolidating and not consolidating should be provided"
  • Asset values and impairment testing - appropriate scepticism, identification of assets and cash-generating units, sensitivity analysis, entities with substantial assets in emerging economies, and the impact of carbon tax. Of interest, ASIC notes that a number of entities have made substantial write downs following inquiries by ASIC due to the carrying amount "disregarding relevant assets, such as inventories, receivables and other items of working capital, which are realised through the cash flows used" in models
  • Going concern - using realistic assumptions, and making appropriate disclosures where significant uncertainties exist
  • Revenue recognition and expense deferral - continued review of revenue recognition policies, and deferring expenses only where permitted by accounting standards
  • Financial instrument values - focus on valuation where value relies on assumptions that are not based on quoted prices or observable market data, and appropriate regard to AASB 13 Fair Value Measurement
  • Estimates and accounting policy judgements - complying with the requirements of AASB 101 Presentation of Financial Statements (ASIC notes an improvement in this area in their recent reviews)
  • Non-IFRS financial information - continued compliance with ASIC Regulatory Guide RG 230 Disclosing non-IFRS financial information
  • Related party disclosures - a new focus area, including "disclosing any relevant information on whether the transactions are on an arm’s length basis, and any terms and conditions"
  • Amortisation of intangible assets - another new focus area, particularly ensuring amortisation is recognised for intangible assets with defined useful lives under agreements.

As an addendum to the main findings, ASIC also outlined the outcomes of its review of the financial reports of 200 proprietary companies lodging financial reports for years ended 30 June 2012 and 31 December 2012 (focused on large proprietary companies).  The review is particularly pertinent as the Australian Accounting Standards Board (AASB) is currently considering whether to eliminate the 'reporting entity concept' as the basis for differential reporting in Australia.

The findings of this review included:

  • Special purpose financial reports. ASIC noted more than 75% of companies reviewed prepared special purpose financial reports even though many had "significant numbers of employees, suppliers and customers"
  • Recognition and measurement. ASIC expects entities to comply with ASIC Regulatory Guide RG 85 Reporting requirements for non-reporting entities, which requires financial reports of relevant proprietary companies to follow the recognition and measurement requirements of accounting standards, whether or not they are reporting entities
  • Other matters. These include a lack of going concern disclosure, a lack of accounting policy detail that are specific to the entity, and relying on audit relief in ASIC Class Order 98/1417 when it is not available to the entity.

Click for ASIC press release (link to ASIC website).

Note: ASIC subsequently announced it will also be focusing on communications between companies and the investment analysts that cover their stock during the June reporting season.

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