ASIC has released its areas of focus for 30 June 2019 reporting, with no significant changes from prior reporting periods. ASIC continues to highlight the requirements and impact of the new accounting standards, noting that the required disclosure of their effect will be more extensive that those made by many companies for the 31 December half year. All preparers (listed and unlisted) should ensure all relevant aspects are addressed.
In announcing its focus areas for the 30 June 2019 reporting period ASIC has continued to emphasise the need for entities to focus on 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 assessing impacts in the financial statements, but includes comments on the real business impacts of the new standards on 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 continues to highlight the importance of communicating the impact of the new standards to the market.
The following summarises the number of inquiries made by ASIC from the last four surveillance financial reporting programs:
Revenue recognition and impairment and other asset values continue to be the areas where ASIC are making a majority of inquiries. The other category is made up of a small number of inquiries for each of the ‘other focus areas’ for ASIC. Both revenue and impairment are areas that often involve significant judgement and estimates.
The rise of revenue recognition issues coincides with the release of the new accounting standard in the area. The new revenue standard’s focus on performance obligations is highlighted and the significant step-up in disclosures will require companies to articulate in more detail how they are recognising and measuring revenue.
ASIC continues to question entities on the bases of carrying amount calculations, particularly around the reliability and objectivity of inputs into models. Not only non-financial asset values, but the valuation of financial assets are of interest.
Climate-related risks are top of mind for regulators and the investor community, both globally and in Australia. APRA, ASIC and the ASX have all highlighted the need for directors to take account of climate-related risk.
Traditionally climate-related risks have been discussed outside the financial statements. There is a call that disclosure in the financial statements of how climate-related risks have or have not been considered – regardless of any quantitative impact – needs to be disclosed, where there is a reasonable expectation that climate-related risks have a significant impact on the entity.
The AASB and AuASB issued a joint Bulletin in April 2019: Climate-related and other emerging risks disclosures: assessing financial statement materiality using AASB/IASB Practice Statement 2 (PDF 994KB) that provides guidance in assessing what disclosures are material to financial statements and which particular areas in the financial statements are most likely to need to be considered in the context of climate-related risks, and how.
“Climate-related risks are top of mind for regulators, businesses and their stakeholders world-wide. Qualitative external factors such as the industry in which the entity operates and investor expectations may make climate-related risks ‘material’. In such circumstances disclosure should be considered in the appropriate notes in the financial statements, regardless of their numerical impact.”
The other focus areas are consistent with those from prior reporting periods. ASIC has confirmed that it will, as before, focus on:
Further details are outlined in the Appendix – ASIC focus areas: Guide for directors and preparers (PDF 396.5KB).
Further discussion relating to ASIC’s focus areas can be found in the attached PDF version of the Reporting Update.