The Australian Securities and Investments Commission (ASIC) has outlined its focus areas for 30 June 2018 financial reports.  The regulator has called on companies to focus on new requirements that can materially affect reported assets, liabilities and profits.  In particular, ASIC highlights that new accounting standards 'will have the greatest impact' for many companies. ASIC Commissioner John Price commented, 'We are concerned that some companies may not have adequately prepared for the impact of new accounting standards that can significantly affect results reported to the market.  So far, surprisingly few companies have made disclosures of the impact of these standards. This may indicate that some companies need to give urgent attention to the impact of the standards on reported results, systems, processes and their businesses'. 

New accounting standards

ASIC states that the following new accounting standards will significantly affect the reported results of many companies.

• AASB 9 Financial Instruments (applies from years commencing 1 January 2018).

• AASB 15 Revenue from Contracts with Customers (applies from years commencing 1 January 2018).

• AASB 16 Leases (applies from years commencing 1 January 2019).

• AASB 17 Insurance Contracts (applies from years commencing 1 January 2021).

• Amendments to standards to apply the new definition and recognition criteria in the Conceptual Framework for Financial Reporting (applies from years commencing 1 January 2020).

[Note: Separately, the Australian Prudential Regulation Authority has written to insurers regarding the application of AASB 16 and AASB 17.  See: APRA Letters, notes and advice issued to general insurers 31/05/2018]

Impact of the new standards? ASIC writes that the new standards 'may significantly affect how and when revenue can be recognised, the values of financial instruments (including loan provisioning and hedge accounting), reported assets and liabilities relating to leases, accounting by insurance companies, and the general identification and recognition of assets, liabilities, income and expenses'.

New disclosure obligations: ASIC writes that the new standards also introduce new disclosure requirements.  Full-year reports at 30 June 2018 must disclose the future impact of the new accounting standards and half-year financial reports at 30 June 2018 must comply with the new requirements for revenue recognition and financial instrument valuation. 

ASIC adds that directors and preparers should consider any continuous disclosure obligations and the need to keep the market informed, as well as the impact on any fundraising and other transaction documents. 

Other areas of focus

Other areas of focus highlighted by ASIC include the following (among others).

• Role of directors and management in ensuring the quality of reports: Referencing both ASIC Information Sheet 183 Directors and financial reporting and ASIC Information Sheet 203 Impairment of non-financial assets: Materials for directors ASIC emphasises that 'directors are primarily responsible for the quality of the financial report' including ensuring that quality financial information is provided 'on a timely basis'.  ASIC adds that companies are required to have appropriate processes, records and analysis to support information in their reports rather than 'simply relying on the independent auditor'.  Companies are also expected, ASIC writes, to apply the appropriate expertise and experience particularly in more difficult and complex areas such as accounting estimates (including impairment of non-financial assets), accounting policies (such as revenue recognition) and taxation. 

• Comprehensive reporting of information that may have a material impact (eg impact of climate change): Referencing ASIC Regulatory Guide 247 Effective disclosure in an operating and financial review, ASIC reminds companies that listed entities should disclose information that may have a material impact on the future position/performance of the entity and cites a number of examples of the sort of information this may include: Brexit, cybersecurity; new technology or climate. 

  ASIC also suggests that directors could consider 'whether it would be worthwhile to disclose additional information that would be relevant under integrated reporting, sustainability reporting or the recommendations of the Task Force on Climate-related Financial Disclosures where that information is not already required for the Operating and Financial Review'.

• Clarity: ASIC states that it will continue to focus on material disclosures of information relevant to investors and others using reports and will not pursue 'immaterial disclosures that may add unnecessary clutter to financial reports'.  ASIC adds that 'efforts should be made to communicate information more clearly in financial reports'.

• Proprietary companies: ASIC states that based on complaints and other intelligence, it continues to review the financial reports of proprietary companies and unlisted public companies.  ASIC adds that it has written to more than 1,000 proprietary companies that failed to lodge reports (without an exemption) and would be writing to 'several hundred more' before the end of the year.

[Source: 18-159MR Major changes affecting reported net assets and profit, and other focuses for 30 June 2018 reporting]