Regulator outlines focus areas

The Australian Investments and Securities Commission (ASIC) has announced its focus areas for the 30 June 2015 financial reports of listed entities and other entities of public interest with many stakeholders.

Key areas of focus are:

Impairment testing and asset values

Preparers and auditors of financial reports have been encouraged to carefully consider the need to impair goodwill and other assets. Fair values attributed to financial assets should also be based on appropriate models, assumptions and inputs. Particular focus should be given to assets of companies in extractive industries and mining support services, as well as asset values that may be affected by digital disruption.

Accounting policy choices

Preparers and auditors should focus on the appropriateness of key accounting policy choices that can significantly affect reported results. These include off-balance sheet arrangements, revenue recognition, expensing of costs that should not be included in asset values, and tax accounting.

Material disclosures

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, significant accounting policy choices, and the impact of new reporting requirements. ASIC does not pursue immaterial disclosures that may add unnecessary clutter to financial reports.

Role of directors

Even though directors do not need to be accounting experts, they should seek explanation and professional advice supporting the accounting treatments chosen if needed and, where appropriate, challenge the accounting estimates and treatments applied in the financial report. They should particularly seek advice where a treatment does not reflect their understanding of the substance of an arrangement.

Other entities

ASIC will continue to review the financial reports of proprietary companies and unlisted public companies based on complaints and other intelligence.

More information can be found here.