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ASIC outlines focus areas for financial reporting

ASIC has highlighted some of the key focus areas for financial reports under COVID-19 conditions for reporting periods ending 31 December 2021.

Tax&Compliance Miranda Brownlee 10 December 2021
— 1 minute read

In a public statement, ASIC said it is calling on directors, preparers of financial reports and auditors to pay attention to some key areas for financial reporting by companies, under COVID-19 conditions, for reporting periods ending 31 December 2021.

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These areas of attention include asset values, provisions, solvency and going concern assessments, events occurring after year end and before completing the financial report and disclosures in the financial report and operating and financial review (OFR).

ASIC stated that appropriate experience and expertise should be applied in the reporting and audit processes, particularly in more difficult and complex areas, such as asset values and other estimates.

“Directors and auditors should be given sufficient time to consider reporting issues and to challenge assumptions, estimates and assessments,” it cautioned.

“Directors should make appropriate enquiries of management to ensure that key processes and internal controls have operated effectively during periods of remote work.”

The circumstances in which judgements on accounting estimates and forward-looking information have been made, and the basis for those judgements, ASIC said, should be properly documented at the time and disclosed as appropriate.

ASIC commissioner Sean Hughes said: COVID-19 conditions have continued through 2021 and companies will be affected differently depending on their industry, where they operate, how their suppliers and customers are affected, and a range of other factors.

“The changing environment in which each company operates will affect its strategies and its assumptions about the future performance of its assets and businesses.

“It remains more important than ever that investors and markets are properly informed through a company’s financial reports and related disclosures about underlying drivers of results, key assumptions, strategies, future prospects and risks in both full-year and half-year reports.”

While entities may continue to face some uncertainties about future economic and market conditions, and the impact on their businesses, ASIC said it is important that assumptions underlying estimates and assessments for financial reporting purposes are reasonable and supportable.

ASIC explained that the OFR should complement the financial report and tell the story of how the entity’s businesses are impacted by both the COVID-19 pandemic and by non- COVID-19 factors.

“The underlying drivers of the results and financial position should be explained, as well as risks, management strategies and future prospects,” it said.

“Forward-looking information should have a reasonable basis and the market should be updated through continuous disclosure if circumstances change.”

ASIC also reminded companies that it has extended the deadline for unlisted entities to lodge financial reports by one month for balance dates from 24 December 2021 to 7 January 2022 inclusive given possible pressures on audit firm staff resources.

ASIC outlines focus areas for financial reporting
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Miranda Brownlee

Miranda Brownlee

Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.

Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

Tax&Compliance