18RU-006 ASIC focus areas: 31 December 2018 - KPMG Australia
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18RU-006 ASIC focus areas: 31 December 2018

18RU-006 ASIC focus areas: 31 December 2018

ASIC has released its areas of focus for 31 December 2018 reporting, with no significant changes from prior reporting periods. ASIC reiterated its concerns regarding the preparedness of companies in respect of the new accounting standards, highlighting its anticipated monitoring and action to ensure compliance for the coming 31 December 2018 reporting period. All preparers (listed and unlisted) should ensure all relevant aspects are addressed.

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Impact of new accounting standards

In announcing its focus areas for the 31 December 2018 reporting period ASIC has continued to emphasise disclosures around the impacts of the new accounting standards that could potentially have a material impact on the reported assets, liabilities, and performance of an entity.

ASIC’s commentary is not only limited to the disclosures of impacts in the financial statements, but includes comments on the real business impacts of the new standard such as debt covenants, regulatory financial condition requirements, remuneration schemes and the ability to pay dividends; as well as the requirements of new systems and processes. ASIC warns that it will be monitoring all of these areas and take any necessary action.

18RU-006 ASIC focus areas: 31 December 2018 – Chart

Annual financial year reports – impact of new accounting standard disclosures

Preparers of financial statements need to be mindful of both the quantitative and qualitative disclosure requirements of AASB 9 and AASB 15 with a significant increase in the disclosure requirements compared to financial statements prepared under the old revenue and financial instrument standards.

Particular disclosure considerations for annual 31 December 2018 financial statements include:

  • how and when revenue will be recognised, including significant judgements made in respect of performance obligations
  • disaggregated revenue disclosures, and those regarding contract balances and costs to obtain or fulfil a contract
  • loan and debtor provisioning including methods, assumptions, judgements and information used to measure the Expected Credit Loss (ECL)
  • hedge instruments and hedged items including the amount, timing and uncertainty of future cash flows and the effects on financial position and performance
  • detailed transition disclosures, including a third balance sheet, qualitative information about key changes and practical expedients used.

“We expect that the practical application of the new disclosure requirements of AASB 9 and AASB 15 along with the transition disclosures required will require considerable effort for financial statement preparers with these financial statements representing the culmination of a number of years work for larger corporates.

We also anticipate that ASIC and investors will use the application of these standards to request information not previously made available. We recommend that your transition project specifically consider the new disclosure requirements.”

Michael Voogt
Director, Department of Professional Practice

 

Leases – pre-implementation and transition

ASIC also highlights that companies should not forget the implementation of AASB 16 Leases. Companies are expected to be able to disclose quantitative impacts in their 31 December financial reports. ASIC notes that companies should be ready to forecast their 2019 and 2020 results consistent with the accounting basis of the new leases standard and that this would be the expectation of the market, especially given the wide ranging impacts this standard will have on the profit and loss statement and the balance sheet.

Half-year reports – transition and implementation

The new revenue and financial instrument standards are effective for half-years ending 31 December 2018 for 30 June 2019 reporters. An entity needs to disclose sufficient information for the user of the financial statements to understand the change compared to the prior year. In addition, if accounting policies have changed from the last annual reporting period, a description of the nature and effect of the change are required to be disclosed in the half-year financial statements.

Other focus areas for 31 December 2018

Apart from a greater emphasis on the new accounting standards, the focus areas are consistent to prior reporting periods. ASIC has confirmed that its focus areas will, once again centre on:

  • accounting estimates around impairment testing and asset values
  • accounting policy choices
  • key disclosures.

Further details are outlined in the Appendix – ASIC focus areas: Guide for directors and preparers (PDF 265.5KB).

Impairment testing and asset values continue to be a significant area of ASIC’s focus. This is the area where most questions are raised by ASIC in its surveillance programs. ASIC continues to question entities on the bases of carrying amount calculations, particularly around the reliability and objectivity of inputs into models.

Approaches to revenue recognition is also high on ASIC’s agenda. We expect this to only increase as the new revenue standard is applied which provides more detailed guidance, and focuses on performance obligations.

Directors primarily responsible for quality of financial reports

ASIC again reminds directors of their primary responsibility for the quality of the financial report. Timely information that is well documented and supported, and been through appropriate analysis will promote high quality financial information being available to the market. Having access to appropriate expertise, especially in areas of complexity and judgement; is critical to achieving this quality.

ASIC also suggests that the Operating and Financial Review (OFR) required by listed companies provides a platform for directors to consider including relevant information relating to current challenges facing companies. These include digital disruption, new technologies, climate change or cyber-security.

While non-IFRS financial information is included in the OFR or other documents outside the financial report, ASIC reminds directors to ensure this is not potentially misleading, and is presented in accordance with ASIC Regulatory Guide RG 230 Disclosing non-IFRS financial information. RG 230 also covers limitations on the use of non-IFRS measures in the financial report.

Proprietary companies

ASIC continues to monitor compliance with lodgement obligations and query proprietary companies that appear to be large that are not lodging financial statements, and do not have a reporting exemption. ASIC also reviews financial reports of proprietary companies based on complaints and other intelligence.

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