Preparing your next financial report

The Australian Securities and Investments Commission (ASIC) warns that the introduction of some major new accounting standards will have the greatest impact on financial reporting since the adoption of International Financial Reporting Standards in 2005.

In a recent media release, it urges directors and management to plan for these new standards and inform investors and other financial report users of the impact on reported results. This includes making required disclosures on the impact of the standards in notes to the financial report.

‘This may well mean quantification of the impacts for the reporting date that coincides with the start of the first comparative period that will be affected in a future financial report,’ says ASIC.

Further information can be found in ASIC media release Companies need to respond to major new accounting standards.

ASIC has also called on preparers of financial reports to focus on the quality of information they provide and to ensure that it is useful and meaningful to users.

ASIC Commissioner John Price says: ‘As with previous reporting periods, directors and auditors should focus on values of assets and accounting policy choices. ASIC continues to see companies use unrealistic assumptions in testing the value of assets or apply inappropriate approaches in areas such as revenue recognition.’

He notes that as part of ASIC's Financial Reporting Surveillance Program, financial reports are selected for review, based on risk-based criteria and at random, to determine compliance with the Corporations Act and accounting standards.

ASIC says directors are primarily responsible for the quality of the financial report. This includes ensuring that management produces quality financial information. Companies must have appropriate processes and records to support information in the financial report rather than simply relying on the independent auditor.

It adds that companies should apply appropriate experience and expertise, particularly in more difficult and complex areas such as accounting estimates (including impairment of non-financial assets), accounting policies (such as revenue recognition) and taxation.

While ASIC does not expect directors to be accounting experts, it says they should seek explanation and advice supporting the accounting treatments chosen 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.

Information should be produced on a timely basis and be supported by appropriate analysis and documentation for the independent audit.

This will support the quality of financial information in the market and enable auditors to focus on their role in providing independent assurance on the financial report.

Further information can be found in ASIC Information Sheet 183 Directors and financial reporting (INFO 183) and ASIC Information Sheet 203 Impairment of non-financial assets: Materials for directors (INFO 203).

ASIC says its surveillance continues to focus on material disclosures of information useful to investors and others using financial reports, such as assumptions supporting accounting estimates and significant accounting policy choices.

It adds that listed companies should continue to disclose information on matters that may have a material impact on the future financial position of the entity. This could include, for example, matters relating to climate change or cyber-security.

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