ASIC has released their findings in relation to the surveillance of 350 financial reports of listed and unlisted entities reporting at 30 June 2009 and has indicated that it continues to have concerns with the following accounting areas.  These areas will remain the focus of financial report reviews for 31 December 2009:

• Going concern – is the adoption of this accounting assumption appropriate? 18% of entities reported an emphasis of matter in relation to going concern which is down on the 25% of listed entities reporting at 31 December 2008.  Common areas that ASIC reviews include reduced liquidity, debt in need of refinancing, and compliance with banking covenants.
  
  
• Asset impairment – is the carrying value of intangibles recoverable? 11% of the value of indefinite life intangibles was written off compared  to the 6% written off for the six months to 31 December 2008. ASIC views the following areas as potential reporting risks:

• optimistic discount and growth rates used in valuation models
• projecting cash flows for periods exceeding 5 years without sufficient justification
• cash-generating units used for goodwill impairment testing not appropriately identified in accordance with AASB 136 thus inflating maintainable goodwill values
• absence of disclosures around CGU carrying values, bases for determining recoverable amounts, assumptions used in valuation models including  sensitivity analyses to changes in those assumptions
• inappropriate utilisation of pre-tax discount rates in DCF valuation models
•  appropriate use of internal and external valuation experts

• Fair value of assets – Does fair value reflect current market conditions? Investment properties were written down by an average of 12% compared to 6% for the previous six months to 31 December 2008.  Again, disclosure of valuation methods and assumptions were lacking. 
  
  Inappropriate utilisation of non-market variables was noted in the valuation of financial instruments and available-for-sale financial assets were not written down as impaired due to entities inappropriately relying upon forecasts for asset recovery.  Some entities were noted as valuing intangibles at fair value despite no active market for the asset existing.
  

• Off-balance sheet exposures – Are all assets and entities consolidated to reflect the substance of the economic arrangement?  ASIC noted non-consolidation of assets and failure to disclose details around off-balance sheet arrangements.
  
  
• Financial instruments – Do the financial statements adequately reflect the significance of the use of financial instruments and how the risks associated with those instruments are managed?  ASIC noted general deficiencies in AASB 7 disclosures that weren’t appropriately tailored to the specific entity’s circumstances.
  
  
• Significant assumptions and judgements – Have you disclosed the significant management decisions that have been made that have had a material effect on the measurement and/or recognition of assets and/or liabilities. 

• Other areas – ASIC will also be focusing in future on the areas of current/non-current debt classifications, aggressive revenue recognition policies, potential for expense deferrals, debt/equity classifications, related party and subsequent event disclosures, newly adopted AASB accounting standards such as AASB 8 Operating Segments, AASB 3 Business Combinations, AASB 127 Consolidated and Separate Financial Statements and AASB 101 Presentation of Financial Statements.