ASIC reveals focus areas ahead of December reporting season
The regulator will prioritise asset values, provisions, subsequent events, and disclosures due to consistent noncompliance among reporters.
ASIC will scrutinise financial reports ending 31 December 2024 for compliance failings around asset values, provisions, subsequent events and disclosures, the regulator said on Friday.
ASIC said it would also be targeting non-compliance with financial reporting obligations more broadly, including new ESG requirements, in the upcoming reporting season.
“We have highlighted matters that require the most judgement and use of estimates as these areas have previously shown the highest rates of non-compliance,” ASIC commissioner Kate O’Rourke said in a statement to directors, preparers of financial reports and auditors.
“While these areas are emphasised, ASIC expects all reporting entities to ensure the reports are complete, accurate and informative.”
Businesses with an income year ending in December must audit and lodge financial reports with ASIC by April 2025, four months within year-end, per the Corporations Act and Australian accounting standards.
ASIC said impairment and asset values would be its first area of focus, urging reporters to conduct impairment testing for non-financial assets, using reliable valuation methods with reasonable assumptions and cross-checking estimates.
For property assets, preparers needed to consider evolving market conditions like changes in tenant requirements and online shopping trends that could impact values. Expected credit losses on loans and receivables would also require a focus on forward-looking assumptions, borrowers’ financial conditions, and probability-weighted scenarios.
Finally, ASIC said financial assets must be appropriately classified based on their business model and contractual cash flow characteristics, while other assets like inventories, deferred tax assets and unlisted investments should be rigorously assessed for their net realisable value.
ASIC said it would also focus on provisions, giving consideration to the need for and adequacy of provisions for matters such as onerous contracts, leased property make good, financial guarantees given and restructuring, as well as “subsequent events” occurring after year-end but before completing the financial report.
The last focus area was disclosures. “When considering the information that should be disclosed in the financial report and operating and financial review, directors and preparers should put themselves in the shoes of investors and consider what information investors would want to know,” ASIC said.
O’Rourke added that ASIC was also concerned with general non-compliance with financial reporting rules.
“While these areas are emphasised, ASIC expects all reporting entities to ensure the reports are complete, accurate and informative,” she said, adding that it would target large companies that failed to lodge required financial reports.
“ASIC is aware that some formerly grandfathered large proprietary companies may not be lodging financial reports, despite being required to do so since years ending 31 December 2022 or 30 June 2023.”
“We will be contacting a number of these entities and, in certain circumstances, may take action against companies for failing to comply with their reporting obligations.”
ASIC would also track compliance with new obligations starting next year, including the first consolidated entity disclosure statement for December year-end reporters and ESG reporting requirements.
The surveillance program comes after ASIC announced a sweeping crackdown on auditors’ independence and conflicts of interest in October.
ASIC said the project would continue in early 2025, encouraging auditors to “self-identify and self-report non-compliance with these obligations”.
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