ASIC has released its focus areas for the year ending 31 December 2017 financial reports, calling on accountants and auditors to address the impact of major new accounting standards as implementation lags.
‘Surprising’ 2017 reports prompt ASIC’s caution to accountants, auditors
ASIC commissioner John Price has urged companies to focus on giving information for users of financial reports that is “useful and meaningful” and to be prepared for the new standards.
The three major accounting standards being introduced include AASB 9 Financial Instruments (applies from years commencing 1 January 2018); AASB 15 Revenue from Contracts with Customers (applies from years commencing 1 January 2018); and AASB 16 Leases (applies from years commencing 1 January 2019).
According to the regulator, there is also a requirement to disclose the impact of the standards in notes to current financial reports ahead of the operative dates for the new standards, which may mean quantification of the impacts for the reporting date that coincides with the start of the first comparative period that will be affected in a future financial report.
Subject to transitional arrangements, that would mean 31 December 2016 for new standards on revenue and financial instrument valuation, and 31 December 2017 for the new lease standard. For the revenue and financial instrument standards 31 December 2016 marks the commencement of the new standards 'going live.'
“New requirements for revenue recognition and financial instrument valuation apply from the year that starts from 31 December 2017,” said Mr Price.
“So far, surprisingly few companies have made disclosures of the impact of these standards. This may indicate that some companies need to give urgent attention to the immediate impact of the standards on systems, processes and their businesses.”
ASIC’s focus areas for 31 December 2017 financial reports will revolve around accounting estimates and accounting policy choices.
“The recoverability of the carrying amounts of assets such as goodwill, other intangibles and property, plant and equipment continues to be an important area of focus,” said ASIC in a statement.
“Particular consideration may need to be given to values of assets of companies in the extractive industries or providing support services to extractive industries, including assets during the exploration and evaluation phase.
“Focus should also be given to the pricing, valuation and accounting for inventories, including the net realisable value of inventories, possible technical or commercial obsolescence, and the substance of pricing and rebate arrangements.”
In relation to accounting policy choices, directors and auditors should review an entity’s revenue recognition policies to ensure that revenue is recognised in accordance with the substance of the underlying transactions.
“As with previous reporting periods, directors and auditors should focus on values of assets and accounting policy choices,” said Mr Price.
“ASIC continues to see companies use unrealistic assumptions in testing the value of assets or applying inappropriate approaches in areas such as revenue recognition.”