Listed entities: Still room to lift their reporting game

Australian companies have significantly enhanced the quality of disclosures in their operating and financial reviews (OFRs), but some need to try harder when describing their businesses and underlying drivers of reported results.

That’s the sentiment from the Australian Securities and Investment Commission (ASIC) following its review of 280 financial reports at 30 June 2013.

ASIC Commissioner John Price adds: “While the quality of financial reporting in Australia is comparable with other major jurisdictions, we continue to identify matters such as inadequate impairment of assets and inappropriate recognition of revenue in some cases.”

The June 2013 annual reports are the first since ASIC released guidance (ref:13-064MR) in March 2013 to help directors of listed entities provide useful and meaningful analysis and information in the OFR.

Past ASIC reviews found that around half of listed companies tried to rely on an exemption for information that could cause unreasonable prejudice and did not disclose any information on business strategies and prospects for future financial years, even when the information was already publicly available.

However, there was a substantial reduction in the use of the exemption in the OFRs reviewed at 30 June 2013.

Nonetheless, ASIC says it has written to, or will be writing to, a number of companies regarding omitted or inadequate disclosures of:

  • The entity's business model(s).
  • Business strategies which are relevant to the entity’s future financial position and performance.
  • Material business risks that could adversely affect the achievement of the future financial performance or financial outcomes of the entity.
  • Underlying drivers of financial performance.
  • Explanation of significant changes in balances.

ASIC adds that some entities make relevant disclosures in investor presentations and analyst briefings rather than in the OFR. However, these disclosures are often in the form of slide presentations, lack supporting explanation and are not in a readily understandable narrative form.

“Our objective is not to increase the length of the OFR, but rather the quality of the information provided in it,” says ASIC.

ASIC also continues to identify concerns regarding assessments of the recoverability of the carrying values of assets, including goodwill, other intangibles, investment properties and property, plant and equipment.

As a result of its inquiries, ASIC says a number of entities have made significant impairment write-downs and will improve their disclosures on matters such as key assumptions

ASIC says it has made inquiries of 70 entities on 100 matters. Of these:

•             Eight have made material restatements of reported net assets and profits.
•             Three have agreed to provide additional material disclosures.
•             Twelve have been concluded without changes to their financial reporting.

Of the inquiries made by ASIC, 34 related to impairment and other asset values, 14 to revenue recognition and nine to consolidation of other entities.

Other inquiries related to the OFR (3), joint arrangements (1), going concern (1), control of assets (3), financial instruments (4), non-IFRS financial information (5), related party disclosures (2), amortisation of intangibles (6), segment reporting (6), current classification of assets (3), business combination accounting (2) and other matters (7).

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