LIC Governance Spotlight: Quality of Financial Reports

19 Jul 2017

In this update we examine ASIC’s media release [17-162MR] highlighting its focus on the quality of financial report information as it applies to a Listed Investment Company (LIC). There are a number of changes and reporting obligations that LICs should be aware of in the lead up to lodging their financial reports.


ASIC’s surveillance program aims to improve the quality of financial reporting. A selection of listed companies are chosen from a variety of industries and varying sizes to monitor compliance with the Corporations Act and Australian Accounting Standards.

ASIC alerts the market prior to each reporting season about current topics or issues that will be the focus of the financial reporting surveillance. Recent alerts have focussed on the quality of financial report information and what is expected of companies in the lead up to the 2017 financial reporting season. This year there is a key focus on useful and meaningful financial information.

The full version of ASIC’s media release is available here.


The regulator has made it clear that the ‘buck’ stops with Directors. Although auditors and management would naturally complete most audit work and prepare the required reports, Directors are primarily responsible for the quality of the financial report.

There is no requirement for Directors to be accounting experts however there is an expectation that Directors will question and seek evidence or an explanation for the accounting treatments chosen and make an informed decision on the numbers presented to them.

Although functions are delegated, Directors must ensure that information is produced on a timely basis and supported by appropriate evidence, analysis or documentation. This documentation is then provided to the auditor.

These processes ensure that the quality of financial information provided to the market is accurate and backed up by a truly independent auditor. The audit process should simply assess the accuracy of the information presented rather than assisting the preparation of financial reports.

New Accounting Standards

In December 2016, ASIC advised of the major new accounting standards that would be in force over the following 2 years.

The new standards impact the reporting of revenue, value of financial instruments, loan loss provisions and the impact of lease arrangements.

LICs should consider the changes in relation to financial instruments with their advisors and consider whether additional disclosure is required under the new accounting standards.

The full version of ASIC’s media release is available here.

Enhanced Audit Report

For most LICs with a 30 June year end, this will be the first time they will be subject to the requirements for an enhanced audit report.

Broadly, auditors are now required to disclose ‘Key Audit Matters’ which are matters that they spent most of their time reviewing during the audit. For LICs this is likely to be assessing financial instruments at fair value and payments to related parties (payments to the Investment Manager).

Directors should ensure that the description of key audit matters and the work performed should be specific to the circumstances of their LIC and not general in nature.

Operating and Financial Review

ASIC has made it clear that effort should be made to ensure financial reports communicate material information in plain English and its content should be useful to investors. In addition, LICs should disclose information on matters which may have a material impact on the future financial position of the entity.

This has previously included topics such as climate change and cyber security and more recently political uncertainty with substantial trading partners. A key disclosure for LICs is any change within its Investment Manager and in particular changes to personnel.


In short, LICs should be aware that:

  1. ASIC conducts financial reporting surveillance.
  2. A key focus of ASIC’s surveillance is the quality of financial reports.
  3. Directors are ultimately responsible for the preparation of financial reports regardless of delegated responsibilities to auditors and management.
  4. There are new accounting standards that may impact a LIC’s disclosure.
  5. An enhanced audit report is now required and will disclose key audit matters considered during the audit.
  6. Directors need to consider the disclosures relevant to their LIC in their financial reports and ensure they are providing useful and meaningful information.

This update is prepared by the Company Secretarial Team at Boardroom Pty Limited. The update is designed to provide general information and is not designed to replace legal or tax advice or a detailed review of the subject matter nor is it intended to cover all circumstances.

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Contact BoardRoom for more information:

Tom Bloomfield

General Manager, Growth & Partnerships
+61 2 9290 9617