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Asset values, provisions, and disclosures are areas singled out for particular attention.
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ASIC reveals focus areas for end-of-calendar-year reporting
05 December 2022
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ASIC has revealed focus areas for 31 December reporting and has urged directors to use the financial reports to provide consequential details for investors.
“Directors should ensure that company financial reports provide investors with useful and meaningful information on the impact on current and future performance of changing and uncertain economic and market conditions,” said ASIC commissioner Sean Hughes.
“Directors and preparers should assess the impact on asset values and provisions, and disclose uncertainties, key assumptions, business strategies and risks.”
ASIC highlighted particular areas for attention in the reports which included asset values, provisions, solvency, events occurring after year-end, and disclosures in financial reports but also the operating and financial review (OFR).
ASIC said areas directors needed to focus on regarding asset values included, property assets, expected credit losses on loans and receivables, and impairment on non-financial assets such as goodwill.
Consideration also needed to be given to the requirement and adequacy of provisions such as contracts, leased property, mine site restoration, financial guarantees given, and restructuring, according to the commission.
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Events that are occurring after year-end and before completing the financial report should be reviewed by directors as to whether they affect assets, liabilities, income, or expenses at year-end or relate to new conditions requiring disclosure according to ASIC.
Other considerations on disclosure were that they should be specific to the circumstances of the entity, that changes from the previous period should be considered and disclosed, and the appropriate classification of assets and liabilities between current and non-current categories.
ASIC said disclosures that should be in businesses’ OFR included that it should explain the underlying drivers of the results and financial position, should complement the financial report, and the overall picture should be clear, understandable, as well as supported by information that would enable investors to understand factors affecting the entity.
The commission said directors and management should also assess how the current and future performance of the firm could be affected by changing circumstances and risks such as:
- Availability of skilled staff and expertise
- Impact of rising interest rates on future cash flows
- Inflationary impacts that could differ between costs and income
- Increase in energy and oil prices
- Geopolitical risks, including Ukraine/Russia conflict
- Impacts of climate change
- Technological changes and innovation
- COVID-19 conditions and restrictions
- Discontinuation of financial and other support from governments
- Legislative and regulatory changes
- Changes in customer preferences and online purchasing trends.
“Companies may continue to face some uncertainties about future economic and market conditions, and the impact on their business,” said Mr Hughes.
“Assumptions underlying estimates and assessment for financial reporting should be reasonable and supportable.”
From early 2020 ASIC extended the deadlines for June and December reporting during the pandemic by one month, however it has confirmed an extension to December 2022 reporting deadlines would not be provided.
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