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ASIC Focus for the Upcoming Reporting Period

The Australian Securities and Investments Commission (ASIC) today highlighted areas of focus for companies and auditors preparing for the upcoming 30 June financial reporting and auditing cycle. ‘This reporting period will have significant challenges for those involved with preparing and approving financial reports and the accompanying audit’, said ASIC’s Chief Accountant, Mr Lee White. ‘All participants involved with the reporting period will need to approach their roles with a strong understanding of the potential impact of the 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 priority.’ ‘The current market turbulence places further emphasis on new accounting standard AASB7 (Financial Instruments: Disclosures) which requires detailed information on the various risks arising from financial instruments and how these risks are being managed. Good disclosure from this standard will assist in keeping users of the financial reports well informed’, Mr White said. Mr White said there had been a wide range of international research into the implications of market turbulence such as the recent report by the Financial Stability Forum, which recommended enhancements to increase the resilience of financial markets. Mr White highlighted the following areas for the upcoming reporting period: The use of 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 to 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; and Foreign currencies - there may be greater stress on currencies with wider, sharper movements bringing focus to foreign currency management and related hedging activities. Other areas of focus for ASIC when reviewing financial reports will be the reported timing recognition of revenue and deferred expenses. Source: Australian Securities & Investment Commission