Watch what you report this year: ASIC warns

The Australian Securities and Investments Commission today highlighted areas of focus for companies and auditors preparing for 30 June financial reporting and auditing.

ASIC’s chief accountant, Lee White, says people will need to approach their roles with a strong understanding of the potential impact of market turbulence and the liquidity squeeze.

“It is essential that companies understand the risks they face and adequately assess and measure them as well as having appropriate responses in place. Disclosure should be a strong focus, and propriety,” he says.

He says the current market turbulence places further emphasis on new accounting standards, which require detailed information on the various risks arising from financial instruments and how these risks will be managed.

The following areas are highlighted by ASIC for the upcoming reporting period:

• The use and disclosure of off-balance-sheet arrangements – international experience has revealed numerous off-balance-sheet arrangements where the market turbulence has returned substantially the risks of the initiator.
• Impairment of asset values – there will be more pressure on understanding, measuring and documenting the triggers of impairment.
• Determining fair market values – challenges in valuation practices and disclosures exist with the market turmoil and illiquid markets. There should be a focus on valuation methodologies and processes and the disclosure of key assumptions, risks and uncertainties.
• Going concern – appropriateness of going concern assumption should be assessed and where relevant, disclosure of levels of uncertainty.
• Significant judgements – all significant judgements used in preparing the financial statements and sources of estimation uncertainty should be disclosed.
• Classification of debt – it is essential that the classification of the maturity of debt is accurate and loan covenants are well understood particularly in terms of triggers.
• Foreign currencies – there may be a greater stress on currencies with wider, sharper movements bringing focus to foreign currency management and related hedging activities.

ASIC will also focus on the reported timing recognition of revenue and deferred expenses.

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