Findings from 30 June 2018 financial reportsJanuary 25, 2019
ASIC today announced the results from a review of the 30 June 2018 financial reports of 215 listed and other public interest entities.
Arising from the review, ASIC has made inquiries of 55 entities on 79 matters, seeking explanations of accounting treatments.
Inquiries made by ASIC from reviews of the 30 June 2018 financial reports relate to the following matters:
Matter Number of inquiries
Impairment and other asset values 28
Revenue recognition 18
Tax accounting 11
Consolidation accounting 4
Business combinations 3
Expense deferral 3
Other matters 12
Total 79
ASIC Commissioner John Price said: ‘ASIC’s concerns continue to relate to impairment of non-financial assets and inappropriate accounting treatments. Directors and auditors should focus on values of assets and accounting policy choices in preparing their December 2018 financial reports.’
ASIC issued Information Sheet 203 Impairment of non-financial assets: Materials for directors (INFO 203) in June 2015 to assist directors and audit committees in considering whether the value of non-financial assets, shown in the company’s financial report, continues to be supportable.
Our risk-based surveillance of public interest entities’ financial reports for reporting periods ended from 30 June 2010 to 31 December 2017, has led to material changes to 4% of the financial reports of public interest entities reviewed by ASIC. The main changes related to impairment of assets, revenue recognition and expense deferral.
Public announcements of material changes
From 1 July 2014, ASIC has publicly announced when a company makes material changes to information previously provided to the market following inquiries by ASIC. In addition to improving the level of market transparency, these announcements are intended to make directors and auditors of other companies more aware of ASIC’s concerns so that they might avoid similar issues.
Since the last release on findings in July 2018, ASIC has issued media releases in relation to changes by Kazakhstan Potash Corporation Limited (18-242MR) and Premier Investments Limited (18-310MR). The total adjustments to profit was approximately $40 million.
Enhanced audit reports
Auditors were required to issue enhanced audit reports for listed entity audits for 30 June 2017 that describe key audit matters requiring the most attention in the audit. ASIC continues to find that some key audit matters were described in general terms rather than being specific to the circumstances of the entity. In some cases, the audit procedures performed were not clearly described.
Background
Inquiries of individual entities will not necessarily lead to material restatements. Matters involving 13 of the entities have been concluded without any changes to their financial reporting.
ASIC generally does not pursue immaterial disclosures that may add unnecessary clutter to financial reports.
More information about the findings from ASIC’s recent reviews of the financial reports of listed entities and of unlisted entities with larger numbers of users is provided below.
ASIC’s focus areas for 31 December 2018 financial reports highlight the need to focus on new requirements that can materially affect reported assets, liabilities and profits, and can be found in ASIC’s media release: 18-364MR.
Attachment to 19-014MR: Findings from 30 June 2018 financial reports
1. Asset values and impairment testing
ASIC continues to identify concerns regarding assessments of the recoverability of the carrying values of assets, including goodwill, exploration and evaluation expenditure, and property, plant and equipment.
Findings include:
(a) Reasonableness of cash flows and assumptions: There continue to be cases where the cash flows and assumptions used by entities in determining recoverable amounts are not reasonable or supportable having regard to matters such as historical cash flows, economic and market conditions, and funding costs.
In particular, we found cases where:
assumptions derived from external sources were not assessed for consistency and relevance; and
the entity’s forecast cash flows did not appear reasonable and had exceeded actual cash flows for a number of reporting periods.
(b) Determining the carrying amount of cash generating units: There are cases where entities appear to:
have identified cash generating units (CGUs) at too high a level despite cash inflows being largely independent, resulting in cash flows from one asset or part of the business being incorrectly used to support the carrying values of other assets;
have not include all assets that generate the cash inflows in the carrying amount of a CGU, such as inventories and trade receivables and tax balances; and
have incorrectly deducted liabilities from the carrying amount of a CGU.
(c) Use of fair value: We still see entities using discounted cash flow techniques to estimate fair value where the calculations are dependent on a large number of management inputs. Where it is not possible to reliably estimate the value that would be received to sell an asset in an orderly transaction between market participants, the entity may need to use the asset’s value in use as its recoverable amount.
(d) Impairment indicators: Some entities are not having sufficient regard to impairment indicators, such as significant adverse changes in market conditions, and reported net assets exceeding market capitalisation.
(e) Disclosures: We still find that there a number of entities not making necessary disclosure of:
sensitivity analysis where there is limited excess of an asset’s recoverable amount over the carrying amount and where a reasonably possible change in one or more assumptions could lead to impairment;
key assumptions, including discount rates and growth rates; and
for fair values, the valuation techniques and inputs used.
These disclosures are important to investors and other users of financial reports given the subjectivity of these calculations/assessments. They enable users to make their own assessments about the carrying values of the entity’s assets and risk of impairment given the estimation uncertainty associated with many asset valuations.
This item includes matters arising from the finalisation of impairment matters identified in our reviews of 30 June 2017 and 31 December 2017 financial reports.
2. Revenue recognition
ASIC is following up 17 matters concerning the recognition of revenue, concerning the recognition of revenue on contracts that involve the provision of goods or services in the future, or multiple deliverables (i.e. both goods and services).
3. Tax accounting
ASIC is making inquiries of 10 entities concerning their accounting for income tax, including the adequacy of tax expense and whether it is probable that future taxable income will be sufficient to enable the recovery of deferred tax assets relating to tax losses.
4. Consolidation accounting
We have made enquiries of several entities on the non-consolidation of other entities, including an entity that has treated an apparent loan securitisation arrangement as off-balance sheet.
5. Business combinations
We have made enquiries of three entities in relation to business combinations. In one instance, the transactions have been treated as under common control which may not be appropriate.
6. Expense deferral
We have made enquiries of three entities to ascertain whether amounts deferred as assets should have been charged to the income statement as expenses. In one instance, costs incurred have been capitalised in anticipation of recovery under an insurance claim.
7. Estimates and accounting policy judgements
We observed instances where entities needed to improve the quality and completeness of disclosures in relation to estimation uncertainties, and significant judgments in applying accounting policies. The disclosure requirements are principle-based and should include all information necessary for investors and others to understand the judgements made and their effect. This may include key assumptions, reasons for judgements, alternative treatments, and appropriate quantification.
Subscribe to our newsletter
Related News
- 2022-23 Federal Budget summary March 30, 2022
- HLB Mann Judd’s Autumn 2022 Financial Times March 10, 2022
- Business leaders’ confidence bounces back, as they look to innovate at speed February 01, 2022
- IPO Watch Australia Report January 28, 2022
- who got JobKeeper payments December 07, 2021
- The Bottom Line Issue 11 by HLB Mann Judd November 01, 2021
- ASIC releases guidance on crypto-asset related investment products October 29, 2021
- third edition of NEXT from KWM October 21, 2021
- Using blockchain for sustainability and green finance October 21, 2021
- ASIC releases 2020–21 Annual Report October 15, 2021
- HLB’s quarterly newsletter September 13, 2021
- ASIC enforcement update January to June 2021 September 09, 2021
- HLB Mann Judd Client Alert – Spring 2021 August 31, 2021
- Modernisation of document execution and meetings and continuous disclosure reform August 13, 2021
- High Court offers clarity around casuals August 05, 2021
- FAR is here – what does it mean for insurers and insurance? August 04, 2021
- IPO watch mid year report July 21, 2021
- Intergenerational Report (IGR) July 01, 2021
- ASIC review of 31 December 2020 financial reports June 16, 2021
- 21-129MR ASIC highlights focus areas for 30 June 2021 financial reports under COVID-19 conditions date of release 10/6/2021 June 10, 2021
- HLB’s quarterly newsletter June 08, 2021
- 2021-2022 Federal Budget May 12, 2021
- Climate change risk disclosures and governance of the ASX50 in 2020 May 11, 2021
- ASIC quarterly update January to March 2021 May 06, 2021
- Firms offering debt management services require credit licence to operate May 05, 2021
- New SME Recovery Loan Scheme March 12, 2021
- Federal Government releases guidance to help businesses and employees better understand their rights and responsibilities in relation to the COVID-19 vaccination in the workplace March 02, 2021
- 2021 IPO Watch Report January 29, 2021
- ASIC highlights focus areas for 31 December 2020 financial reports under COVID-19 conditions December 15, 2020
- ASIC to further extend financial reporting deadlines for listed and unlisted entities and amends ‘no action’ position for AGMs November 11, 2020
- Federal Budget Report 2020-21 October 07, 2020
- Protection for bankruptcy extended September 09, 2020
- ASIC provides relief for companies planning an initial public offering August 27, 2020
- JobKeeper changes to be aware of from 3 August 2020 August 17, 2020
- IPO Watch Mid-Year Report July 24, 2020
- PCP extends platform company eligibility July 22, 2020
- PCP share facilitation company Sharetech now open for business July 22, 2020
- How to deal with COVID-19 in the reporting season July 13, 2020
- financial reporting news and insights June 30, 2020
- End of Year Tax Planning Guide – 2019/20 June 02, 2020
- COVID-19 | Reporting deadlines further extended for listed and unlisted entities May 14, 2020
- COVID-19: Signing contracts electronically just got easier for companies May 06, 2020
- ASIC reports on corporate finance regulation – July to December 2019 April 20, 2020
- JobKeeper Payment has now been legislated by Parliament April 14, 2020
- ASIC to provide additional time for unlisted entity financial reports April 09, 2020
- Coronavirus stimulus package to include jobkeeper payments March 31, 2020
- New ASIC guidelines for upcoming AGMs and financial reporting requirements in light of COVID-19 March 25, 2020
- Initial public offers: Relief for voluntary escrow arrangements and preprospectus communications February 24, 2020
- Financial Services Royal Commission Draft Legislation February 04, 2020
- 2020 IPO Watch Report January 30, 2020
- The execution challenge for a new decade January 21, 2020
- Australian Government delays implementation of Open Banking after facing practical issues with the new Consumer Data Right January 13, 2020
- ASIC reports on corporate insolvencies 2018–19 December 19, 2019
- ASIC Financial reporting focuses for 31 December 2019 December 06, 2019
- ASIC releases report on mining and exploration initial public offers December 05, 2019
- Final ASX listing rules reforms – summary of key changes November 12, 2019
- tokenized securities are the next big megatrend of the blockchain revolution November 06, 2019
- CDR privacy safeguards: OAIC guidance released November 06, 2019
- Financial Services Council releases guide to help stop elder financial abuse October 31, 2019
- Final ASX listing rules reforms October 11, 2019
- ATO celebrates 20-year milestone of regulating self-managed superannuation funds October 10, 2019
- ASIC reports on corporate finance regulation – January to June 2019 September 23, 2019
- Does your SMSF investment strategy meet diversification requirements?’ September 19, 2019
- ASIC’s Corporate Plan 2019-2023 August 28, 2019
- Government announces Hayne Royal Commission implementation timetable August 26, 2019
- Countdown to AGM August 20, 2019
- ASIC enforcement update January to June 2019 August 18, 2019
- ASIC Warns On Insider Trading In Small Cap Miners August 03, 2019
- APRA proposes stronger rules on remuneration August 01, 2019
- AASB 16 Leases – get it right as it may have a large impact on your financial reporting July 19, 2019
- FATF releases 2019 guidance on virtual assets: 9 key points and global changes July 18, 2019
- Major financial reporting changes and other focuses June 17, 2019
- ASIC issues guidance to licensees to protect against share sale fraud June 16, 2019
- ASIC consults on proposals to maintain investor protections by restricting retail offers of ‘stub-equity’ in control transactions June 04, 2019
- ASIC releases market integrity report May 31, 2019
- ASIC updates information for businesses on ICOs and crypto-assets May 30, 2019
- Succession Planning May 14, 2019
- Large proprietary company thresholds increased April 16, 2019
- Australia passes new laws regulating streaming of abhorrent violent material by ISPs and other content providers April 15, 2019
- Federal Budget Review April 03, 2019
- ‘Mind the gap’ – consumers confusing different types of financial advice March 28, 2019
- Accounting and Financial Reporting Standards update March 27, 2019
- ATO & Council of Financial Regulators report on SMSF borrowing arrangements March 22, 2019
- fourth edition of ASX Corporate Governance Council’s Principles and Recommendations officially released. February 27, 2019
- ASIC consults on updating its responsible lending guidance February 14, 2019
- Final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry February 02, 2019
- ASIC reports on 2018 annual general meeting season January 31, 2019
- new mandatory wording requirements for service providers under the Australian Consumer Law January 30, 2019
- Protecting your PPSR Registration from Expiry January 30, 2019
- Findings from 30 June 2018 financial reports January 25, 2019
- Western Australia expands its duty base December 18, 2018
- Australian startup and young technology company funding report 2017/18 December 01, 2018
- proposed changes to the ASX Listing Rules December 01, 2018
- Plans to reduce the financial reporting burden for Australian proprietary companies. November 27, 2018
- The SEC reiterates its position on the issuance, trading and investment in digital assets November 23, 2018
- Three companies combining with a common vision of providing coordinated solutions for unlisted companies November 20, 2018