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Australian regulator outlines findings from its June 2013 financial statement reviews

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

18 Dec 2013

The Australian Securities and Investments Commission (ASIC) has released the findings of its reviews of June 2013 financial reports. Of a review of the financial statements of 280 listed and other entities of public interest, ASIC made enquiries of 70 entities on 100 matters, and this so far has resulted in eleven entities making material restatements or agreeing to provide additional material disclosures.

ASIC undertakes a review of the financial statements of listed entities and unlisted entities with larger numbers of users each six month period. The inquiries arising from June 2013 review covered a broad range of issues, such as revenue recognition, the disclosure of non-IFRS information, consolidation of other entities, segment reporting and intangible amortisation. However, the biggest area where questions arose was in respect of impairment and other asset values.

Some of the specific areas noted by ASIC include:

  • Disclosure in the operating and financial review (OFR) - ASIC found that entities could better articulate in their operating and financial review (OFR) their business model, strategies, and underlying drivers of financial performance
  • Off-balance sheet arrangements and new standards - In relation to the first-time application of AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests in Other Entities and AASB 13 Fair Value Measurement in half-year financial reports, ASIC made enquiries about the non-consolidation of entities, accounting for joint arrangements, and disclosures made about the impact of adoption
  • Asset values and impairment testing - areas of concern include issues with the determination of carrying amount and the delineation of cash-generating units used in impairment testing, the reasonableness of cash flow assumptions, the use of fair value as the basis for determining recoverable amount, and entities neglecting to make necessary disclosures
  • Revenue recognition and expense deferral - as a result of the review, a number of entities made material adjustments for "prematurely recognised revenue" were made by entities. ASIC also had concerns about 'boilerplate' disclosure of revenue recognition policies
  • Estimates and accounting policy judgements - ASIC noted that entities could improve the disclosures required by AASB 101 Presentation of Financial Statements and other standards in relation to judgements, key assumptions, estimation uncertainties and judgements in applying accounting policies
  • Non-IFRS financial information - ASIC found the vast majority of entities were complying with ASIC Regulatory Guide RG 230 Disclosing non-IFRS financial information, but also noted some entities who were not compliant
  • Amortisation of intangibles - ASIC is concerned with compliance with AASB 138 Intangible Assets in relation to the amortisation of intangible assets arising from contractual or legal rights
  • Segment reporting - ASIC noted examples of apparent non-compliance with AASB 8 Operating Segments, including some entities "that provide select segment information in market announcements and other documents but don't disclose segment information in their financial reports".

These areas closely follow ASIC's previously announced intended areas of focus for June.  In a break with its past practice, ASIC has already released its areas of focus for its December 2013 reviews separately from the findings from this review.  The December period reviews will introduce a new focus on compliance with AASB 112 Income Taxes.

An attachment to the ASIC information includes more detailed analysis of its findings and areas of concern.

Click for ASIC release (link to ASIC website).

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