ASIC notes the decision by ASX-listed Melbourne IT Limited (Melbourne IT) to account for certain changes in the value of convertible notes through profit and loss in its financial report for the half-year ended 30 June 2016.

ASIC made inquiries about Melbourne IT’s financial report for the year ended 31 December 2015. Melbourne IT had previously recognised movements in the fair value of embedded derivatives that are a part of its convertible note assets in other comprehensive income rather than profit and loss.

In its financial report for the half-year ended 30 June 2016, Melbourne IT has changed its accounting to recognise the fair value movements of embedded derivatives correctly in profit and loss. Although the fair value movements for the half-year ended 30 June 2016 were small, the profit would have been increased by $510,000 at 31 December 2015 and the impact in future periods could be more significant.

As outlined in ASIC media release 16-174MR ASIC calls on directors to apply realism and clarity to financial reports, financial instrument recognition and measurement remains a focus area of our financial reporting surveillance program.

ASIC reminds companies and those involved in preparing and approving financial reports to pay close attention to the rights and obligations attached to financial instruments when determining the classification and measurement of complex financial instruments. Profit and loss should include all required items to facilitate comparison with the results of other entities.