In preparing financial reports for 30 June 2016, directors should be aware of the following developments and guidance.

ASIC has released its areas of focus for 30 June 2016 financial reports (16-174MR ASIC calls on directors to apply realism and clarity to financial reports), as well as its review of 31 December 2015 financial reports.

For 30 June 2016 reports, ASIC will focus on asset values, accounting policy choices and material disclosures in accounts (see the discussion below)

This is consistent with ASIC’s release of its review of 31 December 2016 reports (16-205MR ASIC review of 31 December 2015 financial reports):

  • The greatest number of enquiries made by ASIC from its review related to impairments and other asset values.  The largest number of enquiries in that category related to assets in extractive industries.
  •  Where ASIC’s review resulted in material changes to financial reports, this mainly related to impairment of assets, revenue recognition and expense deferral.

ASIC has again stressed that, despite directors not needing to be accounting experts, “they should seek explanation and advice supporting the accounting treatments chosen and, where appropriate, challenge the accounting estimates and treatments applied in the financial report.  They should particularly seek advice where a treatment does not reflect their understanding of the substance of an arrangement.” (ASIC 16-174MR)

ASIC focus areas for 2016

In summary, ASIC’s 30 June 2016 financial reporting focus areas relate to:

  • asset values, including:
    • impairment of goodwill, inventories and other assets, including:
      • the reasonableness of cash flows and assumptions, particularly where prior period cash flow projections have not been met; and
      • identifying cash generating units at an appropriate level, particularly when considering discount rates or goodwill impairment,

(further information is also available in ASIC Info 203 Impairment of non-financial assets: Materials for directors);

  • fair values attributable to financial assets; and
  • a particular focus on assets of companies in the extractive industries and mining support services.
  • ​​accounting policy choices, including:
    • the treatment of off-balance sheet arrangements;
    • revenue recognition;
    • expensing of costs, including expense deferral;
    • tax accounting; and
    • inventory pricing and rebates; and​
  • material disclosures, including:
    • assumptions supporting accounting estimates;
    • significant accounting policy choices; and
    • the impact of new reporting requirements.