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14-294MR Focus for 31 December 2014 financial reports
ASIC today announced its areas of focus for 31 December 2014 financial reports of listed entities and other entities of public interest with many stakeholders.
‘Directors and auditors should focus on values of assets and accounting policy choices, which are important to providing meaningful information for investors and everyone else who uses financial reports,’ ASIC Commissioner John Price said.
ASIC encourages preparers and auditors of financial reports to carefully consider the need to impair goodwill and other assets. ASIC continues to find impairment calculations that use unrealistic cash flows and assumptions, as well as material mismatches between the cash flows used and the assets being tested for impairment.
Fair values attributed to financial assets should also be based on appropriate models, assumptions and inputs.
Particular focus should be given to assets of companies in extractive industries and mining support services, as well as asset values that may be affected by digital disruption.
Accounting policy choices
Preparers and auditors should focus on the appropriateness of key accounting policy choices that can significantly affect reported results. These include off-balance sheet arrangements, revenue recognition, expensing of costs that should not be included in asset values, and tax accounting.
ASIC’s surveillance continues to focus on material disclosures of information useful to investors and others using financial reports, such as assumptions supporting accounting estimates, significant accounting policy choices, and the impact of new reporting requirements. ASIC does not pursue immaterial disclosures that may add unnecessary clutter to financial reports.
The role of directors
Even though directors do not need to be accounting experts, they should seek explanation and professional advice supporting the accounting treatments chosen if needed and, where appropriate, challenge the accounting estimates and treatments applied in the financial report. They should particularly seek advice where a treatment does not reflect their understanding of the substance of an arrangement.
Further information on directors and financial reports can be found in ASIC Information Sheet 183 Directors and financial reporting (INFO 183). Directors should also read ASIC Information Sheet 196 Audit quality: the role of directors and audit committees (INFO 196).
More information on focuses for 31 December 2014 financial reports is provided in the attachment.