While KPMG’s report on the application of ASIC’s guidance in Regulatory Guide 247 on disclosure in an operating and financial review (OFR) shows significant improvement in disclosures by ASX 51-100 companies in the first year since the introduction of RG 247, 10 key areas for improvement were identified. While there is no legal requirement to comply with RG 247, it represents ASIC’s interpretation of the Corporations Act 2001 (Cth) and as such, reporting entities should familiarise themselves with the areas for improvement identified by KPMG and consider whether any changes to their current OFR disclosure are required.

KPMG has published a study, Operating and Financial Reviews - Application of ASIC’s regulatory guide April 2014, which aims to help boards and management address the gaps in current reporting and includes observations on the application of ASIC’s Regulatory Guide 247 Effective disclosure in a an operating and financial reviews (RG 247) in the most recent reporting season.

The study shows a significant improvement of ASX 51-100 listed companies’ disclosures of operations, financial positions, business strategies and future prospects in the first year since the introduction of RG 247. Specifically, more than 30% of companies studied included enhanced information on strategies and prospects, almost 50% included enhanced business risk information and 30% either included a discussion of their financial position for the first time, or gave more in-depth analysis than previously.

However, the study highlights 10 key areas where entities should continue to focus their attention in preparing their OFRs (using over 30 pages of good disclosure examples drawn from recent practice within the ASX51-100) including: 

  • including in the OFR all key information in investor presentations and market announcements, especially in relation to strategies, prospects and risks; 
  • analysing key expense items, rather than just focussing on revenue and income items as well as discussing the undervalued or unrecognised assets and liabilities relevant to the company’s financial position;
  • clearly identifying non-IFRS measures and explaining why they are useful; 
  • including all significant assets and liabilities in the financial position discussion and ensuring the discussion enhances the reader’s understanding of the company’s financial position; 
  • including a more long-term discussion of strategy and prospect (including risk information) beyond the next financial year and including tailored material risk disclosures; 
  • discussing the company’s business model; and 
  • locating all OFR information in a single section in the annual report and cross referencing from the directors’ report to the relevant pages of the annual report where OFR information is found outside of the directors’ report.