ASIC raises over 50 inquiries following financial report reviews

ASIC’s latest review of reports of 150 entities for the year ended 30 June 2021 saw the largest number of matters related to impairment and expected credit losses (14) and operating and financial review (OFR) (10).

On Thursday (16 December), ASIC commissioner Sean Hughes said some entities did not give “sufficient attention” to the report of asset values and disclosure of business risks in the operating and financial review.

“Many entities face uncertainties about the future economic and market conditions due to COVID-19. We continue to raise inquiries where the assumptions about future cash flows appear unsupportable, and where the impacts of COVID-19 conditions on the business were not clearly disclosed,” Mr Hughes said.

“The findings of this review emphasise that directors and auditors should continue to focus on impairment of assets, particularly as some businesses may be adversely affected in a post-COVID environment or by continuing pandemic impacts in overseas markets.”

Other areas of concern included revenue recognition, tax accounting and expense deferral.

The findings have resulted in ASIC urging for greater focus on material business risk, saying the OFR helps inform the decision-making of investors.

“Directors are reminded the OFR provides an important complement to the financial report by telling the story about the drivers of the company’s results, its strategies and prospects,” ASIC said.

“This includes the material non-generic risks to those achieving the financial prospects described.”

ASIC said it would continue to “closely” review financial reports.

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.