Financial reports need more clarity, realism
The Australian Securities and Investments Commission (ASIC) has urged companies to focus on preparing and presenting their financial reports, for the period ended 31 December 2016, in a more useful and meaningful way for their users.
ASIC stressed that it was crucial for the companies and their director to apply more realism and clarity to financial reports.
In particular, companies should focus on adopting realistic valuations for their asset values, choosing appropriate accounting policies and ensuring effective communication of the information.
ASIC also announced it would select financial reports for review, as part of its financial reporting surveillance program, to determine their compliance with the Corporations Act and accounting standards.
The regulator also identified key problem areas to be addressed, which included the method of calculation of the asset values, selection of appropriate accounting policy, material disclosures, the role of directors and issues related to client monies.
In particular, ASIC urged thos preparing financial reports and their auditors to find impairment calculations based on unrealistic cash flows and assumptions, as well as material mismatches between the cash flows used and encouraged directors and auditors to consider how the choice of their preferred accounting policy could affect reported results.
Additionally, it said it would pursue "immaterial disclosures that may add unnecessary clutter to financial reports".
At the same time, ASIC said that although it did not require directors of the companies to be financial experts, they should "seek explanation and advice supporting the accounting treatments chosen".
Also, auditors of listed entities would be required to issue enhanced audit reports from financial years ending on or after 15 December 2016.
According to ASIC, Australian financial services licensees (AFSLs) should also ensure client monies were appropriately held in separate trust bank accounts and in accordance with the Corporations Act, it said.
"As in previous reporting periods, directors and auditors should focus on values of assets and accounting policy choices," ASIC commissioner, John Price, said.
"ASIC continues to see companies use unrealistic assumptions in testing the value of assets or that have applied inappropriate approaches in areas such as revenue recognition."
AUTHOR
Oksana Patron
Recommended for you
Financial Services Minister Stephen Jones has shared further details on the second tranche of the Delivering Better Financial Outcomes reforms including modernising best interests duty and reforming Statements of Advice.
The Federal Court has found a company director guilty of operating unregistered managed investment schemes and carrying on a financial services business without holding an AFSL.
The Governance Institute has said ASIC’s governance arrangements are no longer “fit for purpose” in a time when financial markets are quickly innovating and cyber crime becomes a threat.
Compliance professionals working in financial services are facing burnout risk as higher workloads, coupled with the ever-changing regulation, place notable strain on staff.
