ASIC has released its focus areas for reviewing 30 June 2018 financial reports. Whilst the usual suspects are still present, it is clear the main focus is on the expected impacts of the major new accounting standards (Revenue, Leases and Financial Instruments).
The new accounting standards are being touted as the biggest change since the introduction of International Financial Reporting Standards (IFRS) in 2005. Whilst ASIC has consistently flagged the need for preparers to disclose the expected impacts of these major changes, the number of companies that have completed an assessment and made the necessary disclosures is still quite limited, causing greater concern for ASIC.
Accounting standards require disclosure of the expected impact of accounting standards issued not yet effective. Whilst these disclosures are important to investors and other users of the information, companies should also be mindful of other implications. The new standards may impact compliance with covenants or regulatory requirements, remuneration schemes, tax liabilities and possibly dividend paying capacity. Depending on the existing systems in place and the changes resulting from the standard, companies may require system changes which may take a considerable amount of time to implement.
For June full year reports, companies should be well on their way to quantifying the expected impact of the new standards. For June half-year reports, companies are required to be applying both the Revenue and Financial Instrument standards and are therefore required to make the necessary disclosures for changes in accounting policies resulting from applying the new standards.
Whilst the Australian Accounting Standards Board (AASB) has not yet issued a revised conceptual framework, entities that state IFRS compliance should also disclose the expected impacts of the recognition criteria for assets, liabilities, income and expenses in the International Conceptual Framework.
In their release, ASIC also highlights that they wrote to over 1,000 proprietary companies that they believe should have lodged financial reports, but have failed to do so. They have also advised this will continue later this year.
ASIC focus areas for June 2018 financial reports are:
- Impact of the new standards
- Impairment testing and asset values
- Revenue recognition
- Expense deferral
- Off-balance sheet arrangements
- Tax accounting
- Estimates and accounting policy judgements
Read ASIC’s media release 18-159MR for full details on the focus areas for June 2018. The release also includes links to information sheets providing useful information for preparers and directors on financial reporting and impairment of non-financial assets as well as previous releases regarding the need to respond to major new accounting standards.
IFRS Technical Manager