ASIC announces areas of focus for upcoming reporting season

On 6 June 2023 ASIC announced its areas of focus for the upcoming end of financial year reporting period. Company boards and their advisers should take heed of these matters as reporting season approaches. Importantly, Directors’ and Officers’ Liability insurers will seek out underwriting information from proposers regarding compliance with these concerns as renewals approach.

ASIC announced that directors need to ensure investors are properly informed on the impact of changing and uncertain economic and market conditions and developments on financial position and future performance. Examples of changing circumstances, uncertainties and risks include the impact of rising interest rates on future cash flows and on discount rates used in valuing assets and liabilities, inflationary impacts that may differ between costs and income, and technological changes.

The areas of attention are:
  1. Asset Values

  2. Provisions

  3. Solvency and going concern assessments

  4. Subsequent Events

  5. Disclosures in the financial report and Operating and Financial Review (OFR)

  6. New insurance accounting standard.

Discussion of each area is further below:
Asset values
Matters that may require focus in relation to asset values in the current environment include:
  • Impairment of non-financial assets - goodwill, indefinite useful life intangible assets and intangible assets not yet available for use, must be tested for impairment annually.

  • Values of property assets- factors that could adversely affect commercial and retail property values should be considered such as changes in office space requirements of tenants, future economic or industry impacts on tenants, the financial condition of tenants and restructured lease agreements.

  • Expected credit losses (ECLs) on loans and receivables should be a focus for companies, especially those in the financial sector. This includes assessing whether there are significant increases in credit risk for particular groups of lenders; adequacy of data, modelling, controls and governance in determining ECLs; and disclosing uncertainties and assumptions.

  • Financial asset classification- financial assets should be appropriately measured at amortised cost, fair value through other comprehensive income or fair value through profit and loss.

  • Value of other assets - the net realisable value of inventories, including whether all estimated costs of completion necessary to make the sale have been taken into account in determining net realisable value.

Consideration should be given to the need for and adequacy of provisions for matters such as:
  • onerous contracts

  • leased property make good

  • mine site restoration

  • financial guarantees given

  • restructuring.

Impacts on asset values and provisions should be assessed, and uncertainties, key assumptions, business strategies and risks disclosed, especially within the construction industry, for owners of commercial property, large carbon emitters and the agriculture industry.
Subsequent Events

Events occurring after year end and before completing the financial reports should be reviewed as to whether they affect assets, liabilities, income or expenses at year end or relate to new conditions requiring disclosure.

Disclosures in the financial report and Operating and Financial Review (OFR)

Changes from the previous period should be disclosed and should be specific to the circumstances of the entity and its businesses, assets, financial position and performance to assist investors in understanding the approach taken, understanding potential future impacts and making comparisons between entities.

The OFR should tell the story of how the entity’s businesses, results and prospects are impacted by economic and market conditions, and changing circumstances.

The underlying drivers of the results and financial position should be explained, as well as risks, management strategies and future prospects.

The most significant business risks at whole-of-entity level that could affect the achievement of the disclosed financial performance or outcomes should be provided, including a discussion of environmental, social and governance (ESG) risks.

Any non-IFRS profit measures (i.e. measures not in accordance with all relevant accounting standards) in the OFR or market announcements should not be presented in a potentially misleading manner.

ASICs official media release can be found here.

In advance of the upcoming reporting season it is important boards take heed of ASICs concerns. Directors’ & Officers’ Liability insurers will be having regard to adherence with same. For further information and advice regarding liabilities for Directors and Officers, please contact us via the form below.

Stay informed with our latest articles

* indicates required