ASIC has announced the results of its review of 31 December financial reports.
This review is regularly conducted by ASIC, and covered 90 listed and other public interest entities.
Following the review, ASIC has made inquiries of 17 entities, seeking explanations of accounting treatments in 20 areas:
|Matter||Number of Enquiries|
|Asset values and impairment testing||3|
|Amortisation of intangible assets||2|
|Classification of liabilities is non-current||2|
The matters identified by ASIC throughout its review included the following areas:
DISCLOSURES IN RELATION TO CHANGES FROM THE REVENUE RECOGNITION AND FINANCIAL INSTRUMENTS
ASIC’s review found that most entities that were likely to show material changes have not quantified the expected impact of these Standards.
In ASICs view, this to indicate a lack of preparing this for reporting on the new Standards.
IDENTIFICATION OF CASH GENERATING UNITS
There were cases where entities appear to have identified CGUs at too high a level, with cash flows from one asset been incorrectly used to support carrying values of other assets.
REASONABLENESS OF CASH FLOWS AND OTHER ASSUMPTIONS
ASIC continues to find cases where cash flows and assumptions in determining recoverable amounts are not reasonable or supportable, including one case where forecast cash flows exceeded actual cash flows for a number of periods.
USE OF FAIR VALUE BASED ON MARKET RATHER THAN VALUE IN USE
Some entities had used discounted cash flow techniques to estimate fair value where the calculations were dependent on a large number of management inputs. In such cases where it is not possible to reliably estimate value, an entity should use a “value in use” calculation of recoverable amount.
IMPAIRMENT INDICATORS NOT CONSIDERED
Accounting Standards require Directors to consider whether any impairment indicators exist, and if they exist, then determine the fair value.
ASIC found that some entities had not done this, despite impairment indicators existing.
The matters noted by ASIC include recoverability of deferred tax asset, and a lack of disclosure of disputes with the ATO.
ESTIMATES AND ACCOUNTING POLICY JUDGEMENTS
ASIC considers that some entities need to improve the quality and depth of disclosures in relation to estimation uncertainties and significant judgements.
KEY AUDIT MATTERS
Auditors of listed entities are required to describe key audit matters is in the auditor’s report. ASIC found some KAM that were described in general terms, rather than specific, and found others where audit procedures performed had not been clearly described.
A link to the ASIC announcement is below:
We encourage all Directors and others involved in the preparation of financial reports to consider these ASIC findings, and ensure that your financial reports can’t be criticised along the lines of the above mentioned findings.