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- ASIC focus for the 30 June 2010 reporting period
ASIC focus for the 30 June 2010 reporting period
- By Rob Mackay
- Published 1/07/2010
- June 2010
- Unrated
With the 30 June 2010 reporting period imminent it is an opportune time to consider some of the areas of ASIC focus, when they again review listed and unlisted entity financial statements.
The five main areas of focus arising from the Global Financial Crisis (‘GFC’) which ASIC will again consider are:
Going Concern
The going concern basis of financial report preparation continues to provide many entities with challenges as they face ongoing financing and liquidity complications. At June, ASIC will again focus on whether the going concern basis of financial reporting has been correctly applied, and whether there are sufficient financial report disclosures to address going concern difficulties and any associated audit report modifications.
Impairment
Consistent with the December 2009 reporting period, ASIC expects to again see a number of entities recognising impairment losses. In this regard, ASIC are particularly concerned with ensuring that entities have adequately disclosed the key assumptions and estimation uncertainties relating to their impairment models as these assumptions and estimates are particularly subjective and are open to interpretation. ASIC will also examine the sensitivity of impairment testing models to changes in the inputs, and the resultant effect this may have on the financial report. Where this impact is material, the sensitivity analysis should be disclosed.
Another focus will be the disclosures supporting Cash Generating Units (“CGUs”) ensuring the identified CGUs are no larger than operating segments in accordance with AASB 8.
Fair Value Determination
In regards to investment properties, ASIC have acknowledged that they would expect an increase in the number of investment properties declining in value at 30 June 2010. ASIC noted that in spite of the GFC, in many cases investment property fair values at June 2009 and December 2009 continued to increase in financial reports.
With this in mind, ASIC will also be closely reviewing instances where assets carried at fair value are subject to a fair value increase as a result of a directors’ valuation, where it is anticipated that the market fair value would have decreased.
Off-balance sheet arrangements
ASIC continues to have concerns regarding instances where not all assets and liabilities or entities are consolidated for financial reporting purposes, and this non-consolidation is not reflective of the substance of the arrangement. ASIC have noted situations where, for example, de-facto control has existed and the entity has not been consolidated.
In these instances ASIC is looking for adequate disclosures to explain the nature and scale of the arrangements and why they have been kept off the balance sheet.
Financial Instrument Disclosures
As with prior periods, ASIC is looking to ensure that the financial statements adequately reflect the significance of the use of financial instruments and how the risks associated with those instruments are managed.
Other areas of ASIC review
ASIC will also be ensuring:
The five main areas of focus arising from the Global Financial Crisis (‘GFC’) which ASIC will again consider are:
- Going concern;
- Impairment;
- Fair value determination;
- Off balance sheet arrangements; and
- Financial instrument disclosures.
Going Concern
The going concern basis of financial report preparation continues to provide many entities with challenges as they face ongoing financing and liquidity complications. At June, ASIC will again focus on whether the going concern basis of financial reporting has been correctly applied, and whether there are sufficient financial report disclosures to address going concern difficulties and any associated audit report modifications.
Impairment
Consistent with the December 2009 reporting period, ASIC expects to again see a number of entities recognising impairment losses. In this regard, ASIC are particularly concerned with ensuring that entities have adequately disclosed the key assumptions and estimation uncertainties relating to their impairment models as these assumptions and estimates are particularly subjective and are open to interpretation. ASIC will also examine the sensitivity of impairment testing models to changes in the inputs, and the resultant effect this may have on the financial report. Where this impact is material, the sensitivity analysis should be disclosed.
Another focus will be the disclosures supporting Cash Generating Units (“CGUs”) ensuring the identified CGUs are no larger than operating segments in accordance with AASB 8.
Fair Value Determination
In regards to investment properties, ASIC have acknowledged that they would expect an increase in the number of investment properties declining in value at 30 June 2010. ASIC noted that in spite of the GFC, in many cases investment property fair values at June 2009 and December 2009 continued to increase in financial reports.
With this in mind, ASIC will also be closely reviewing instances where assets carried at fair value are subject to a fair value increase as a result of a directors’ valuation, where it is anticipated that the market fair value would have decreased.
Off-balance sheet arrangements
ASIC continues to have concerns regarding instances where not all assets and liabilities or entities are consolidated for financial reporting purposes, and this non-consolidation is not reflective of the substance of the arrangement. ASIC have noted situations where, for example, de-facto control has existed and the entity has not been consolidated.
In these instances ASIC is looking for adequate disclosures to explain the nature and scale of the arrangements and why they have been kept off the balance sheet.
Financial Instrument Disclosures
As with prior periods, ASIC is looking to ensure that the financial statements adequately reflect the significance of the use of financial instruments and how the risks associated with those instruments are managed.
Other areas of ASIC review
ASIC will also be ensuring:
- That entities are correctly classifying assets and liabilities as current or non-current;
- That entities are giving due consideration to the intention and purpose of any significant borrowings in order to correctly classify these borrowings as either debt or equity;
- That non-statutory profit figures presented are outside of the financial report and are consistent and comparable from one reporting period to the next;
- That entities have appropriately adopted the amended requirements in AASB 3 and AASB 127 as the requirements became mandatory for the first time for financial reporting periods ending on or after 30 June 2010; and
- That intangible asset are only carried at fair value where the requirements of Australian Accounting Standards are met with respect to the presence of active markets, and in ASIC’s view, such markets are unlikely to exist.
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Article Series
This article is part 1 of a 6 part series. Other articles in this series are shown below:
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ASIC focus for the 30 June 2010 reporting period