Executive Summary
In a recent media release, ASIC has highlighted key areas of emphasis for financial reporting by companies for reporting periods that ended on 31 December 2021, given the current COVID-19 conditions.
The main points of emphasis are:
- Asset values
- Provisions
- Solvency and going concern assessments
- Events occurring after year end and before completing the financial report
- Disclosures in the financial report and Operating and Financial Review (OFR)
ASIC Commissioner Sean Hughes remarked on the differing impact COVID-19 had on Australian companies, and that many businesses will have to adopt changes in strategies and assumptions to deal with COVID. ‘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’, Mr Hughes said.
In this reporting process, ASIC have underscored the importance of appropriate experience and expertise being applied in the reporting and audit processes, particularly in more difficult and complex areas, such as asset values and other estimates. Below are three key expectations ASIC have highlighted for Directors in the reporting and audit processes:
- Directors should provide sufficient time for the auditors to consider reporting issues and to challenge assumptions, estimates and assessments (given the challenges around COVID-19).
- Directors should test and challenge – directors should be allowed to make appropriate enquiries of management to ensure key processes and internal controls have operated effectively during periods of remote work (i.e the COVID Experience).
- Directors should ensure the circumstances in which judgments on accounting estimates and forward-looking information has been made, and the basis for those judgements, would be properly documented at the time and disclosed as appropriate. Particularly relevant in Covid times in relation to forecasts, assumptions around expenses and receivables.
Disclosures
Focusing on one of ASIC’s main points of emphasis, the Operating and Financial Review (OFR) has been held up as a key aspect of ASIC’s focus in the upcoming period. They have indicated that the OFR should complement the financial report and tell the story of how the entity’s businesses are impacted by the COVID-19 pandemic and changing circumstances. The overall picture should be clear, understandable, and be supported by information that will enable investors to understand the significant factors affecting the entity, its businesses and the value of its assets. As well as this, ASIC highlighted the need to provide a clear insight into uncertainties, changing key assumptions and sensitivities. Further to this, entities should appropriately account for support and assistance from government, lenders, landlords and others, including JobKeeper, land tax relief, loan deferrals and restructuring, and rent deferrals and waivers.
For more on these matters and to read the full ASIC media release, please visit the ASIC website here.
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