Australia: The director's report - operating and financial review (OFR)

Financial Reporting Update
Last Updated: 14 June 2013
Article by Rob MacKay and Dean Ardern

ASIC Regulatory Guide 247
Effective disclosure in an Operating and Financial Review

ASIC RG 247 assists Directors in complying with obligations under Section 299A

s.299A "Information reasonably required by shareholders to make informed assessment of :-
  1. operations
  2. financial position
  3. business strategies and prospects for the future"
"The wording of the OFR requirements demonstrates a legislative intention that a mere recounting of the key findings set out in the financial report will not satisfy the requirements of s299A"

Broadly, ASIC requires...

  • Information that brings together past market announcements
  • Clarity, Conciseness, Effectiveness, Quality over Quantity
  • Contextualising the information in the financial statements

Information about an entity's..... operations and performance

  • Material transactions and events
  • Factors and drivers underlying the results and financial position for the period (new business, new products, new competition etc)
  • Explanation of the entity's business model and key dependencies and their effect on operations
  • Types of markets and position within each market for significant products and services

Information about an entity's... business strategies and prospects (Pt 1 of 3)

  • Key strategies
    • Intentions to develop/discontinue products or services
    • Entering new markets
    • Expansion of capacity
    • Raising capital

Information about an entity's... business strategies and prospects (Pt 2 of 3)

  • Prospects
    • Narrative explaining financial performance and financial outcomes the entity expects to achieve overall (based on strategies)
    • Generally non-financial information
    • Should include acknowledgement and discussion of accompanying risks

Information about an entity's... business strategies and prospects(Pt 3 of 3)

Unreasonable Prejudice Exemption

  • Is it likely?
  • Would it give competitors, suppliers and buyers a commercial advantage over you resulting in material disadvantage?
  • If the information is 'confidential', you may have grounds to omit disclosure
  • Don't omit information that the market could reasonably otherwise obtain or deduce
  • ASIC recommends a high level summary of the type of information omitted

"It would be rare to disclose no information at all....."

ASIC Surveillance

ASIC Surveillance Areas

Large Pty Ltd's

  • 200 sets of financial statements reviewed
  • Majority were SPFR's - claims of being nonreporting entities 'eye-raising'
  • Boiler plate disclosures not reflective of company
  • Accounting policies generic and/or unclear
  • Absence of impairment and associated disclosures despite generating losses or negative cash flows

ASX Listed Entities – December 2012 outcomes

  • 150 December reporting entities
  • Minimal disclosure of impact assessment of new accounting standards applicable from 1 Jan 2013
  • Impairment of PPE and Intangibles (only about 20 companies had recognised any impairment)
  • Insufficient disclosure around valuation assumptions, inappropriate discount rates in use, aggressive cash flow projections
  • Indefinite vs finite useful lives of intangibles

ASX Listed Entities – December 2012 outcomes (cont'd)

  • Issues with prominence non-IFRS financial information and inconsistencies in reconciliation (see ASIC RG 230)
  • Rights to future revenue are intangible assets not financial instruments
  • Inappropriate expense deferral (capitalising such items as training, research, relocation costs)
  • Going Concern issues – absence of disclosure about how directors consider entity remains solvent

ASX Listed Entities

30 June 2013 – Areas of focus
  • All of the
  • Operating and financial review (RG 247)
  • Related party disclosures
  • Financial Instrument measurements

Update on Lease Accounting

Update on Leases (ED 242)

  • Continues to propose the removal of the Finance Lease vs Operating Lease accounting distinction
  • Why? Increase the transparency of an entity's leverage and eliminate guesswork of off-balance sheet financing
  • Requires recognition of a Right of Use asset and liability for ALL leases
  • Off-balance sheet leases prohibited unless < 12 months long

Dual Approach model

"Is lessee expected to consume more than an insignificant portion of the economic benefits embedded in the underlying asset"

Lessee Accounting

Update on Leases

Type A Lease - Balance Sheet Impact - ED 242

Update on Leases

Update on Revenue Accounting

Revenue Accounting Update

  • Final standard due by September 2013
  • Application from 1 January 2017
  • Retrospective accounting required
  • Proposes single model of revenue recognition (replaces AASB 118 and AASB 111)
  • Introducing comparability across industries
  • Multi-element contracts will particularly be affected

Revenue from Contracts with Customers

  • Industries consulted:
    • Automotive
    • Construction & Engineering
    • Energy and utilities
    • Financial services
    • Franchisors
    • Health care
    • Pharmaceutical & Life sciences
    • Industrial Products and Manufacturing
    • Media and entertainment
    • Real estate
    • Software and technology
    • Telecommunications

Possible implications on financial statements

Revision AASB 111/118

Timing of revenue recognition

Contracts for asset development will result in continuous revenue recognition only when the customer controls the asset in development

Revenue recognised on stage of completion basis. Diversity in practice exists

Unit of Account

Entity may be required to divide contracts into smaller components of distinct performance obligations that are delivered at different times

Essentially account for delivery of the overall asset or overall project if priced as a package

Capitalised expenditure

Certain contract costs are capitalised as an asset if of value to the contract overall in future periods

May have been expensed depending on industry. Diversity exists

Amount of revenue

Recognise revenue to the extent entitlement is reasonably assured (gives rise to refund liabilities and adjustments to COGS)

Revenue recognised on transfer of risks and benefits associated with good or service

Contingent revenue

For variable pricing, need to estimate the most likely outcome and adjust subsequently

Variable revenue generally recognised when contingency resolved. Divergent practice.

Licensing and Rights

Recognise revenue upfront when selling right of use of IP on given day; over period when selling access to fluid IP. Make sure other distinct goods and services are separated out

The weightings of upfront vs. deferred revenue may alter. Divergent practice

Business process issues to consider

  • Consider the need to restructure of supply contracts and when control is delivered to customer.
  • Does there need to be change in the way goods and/or services are delivered or in the nature of what is delivered (e.g. can they be bundled differently)
  • Where are the areas where judgement is required in determining whether and when a performance obligation has been satisfied.
  • How will we track revenue for multi-deliverable contracts? How do we assign a price to each element?
  • Can current accounting systems pick up the necessary information? IT developers may be needed

Business process issues to consider

  • Disclosure and presentations have increased. What information do we need to capture?
  • Will the effects on the balance sheet impact covenants
  • Is there separate performance obligations that will result in onerous performance liabilities?
  • There is likely to be more use of significant estimates and judgements. How do I formulate and disclose these?
  • Expected Refunds must be accounted for from Day 1
  • Extended Warranties are a separate performance obligation

Developments in Corporations Law

  1. Closure of Financial Reporting Panel (Amendment to ASIC Act – effective September 2012)
  2. Corporations Legislation Amendment (Remuneration Disclosures and Other Measures) Bill 2012 (Draft Bill Only)
    • No Remuneration Report for unlisted disclosing entities
    • Remuneration Governance Frameworks disclosure added
    • Additional KMP remuneration disclosures
    • Actions taken against KMP if any of past 3 years financial statements proven to be misstated
    • Clarification to dividend payment test
  1. Corporations Legislation Amendment Regulation 2013 (No. A) (Draft only)
    • Introduce the individual KMP remuneration disclosures taken out of AASB 124 into Remuneration Report

New Requirements for 30 June 2013

Presentation of OCI

  • Separately present OCI items that:
    1. will be reclassified ('recycled') in future to P/L when specific conditions are met
    2. will never be reclassified to P/L

    Also disclose reclassifications during the period from OCI to P/L

  • Option to present OCI items on the face of the financial statements:
    1. net of related tax
    2. gross of related tax with aggregate tax relating to OCI in single line

Apply (ii), allocate tax between OCI items classified into (a) and (b)

Example Presentation of OCI

Deferred tax on PPE or Investment Property

  • Previously - measure tax amounts with regards to way carrying amounts recovered (either use or sale)
  • Now – for non-depreciating assets measured under revaluation model in AASB 116 or AASB 140:
    • rebuttable presumption that carrying amounts will be recovered through sale
    • presumption rebutted if investment property held in business model where objective is to substantially consume benefits over time rather than sell

New Requirements for Future Reporting Periods

AASB 10: Consolidated Financial Statements

  • New definition of 'control'
  • No change to consolidation (accounting) process
  • Mandatory application by FPs from 1 Jan 2013 and NFPs from 1 Jan 2014

Summary of 'Control'

Entities most likely to be impacted by AASB 10

  • Hold significant, but not majority, equity interests in another entity
  • Hold significant equity and debt interests in another entity
  • Undertake asset and/or fund manager roles
  • Provide KMP or critical services/assets to other entities
  • Use special purpose ('structured') entities
  • Have power over specified assets ('silos') of an investee

AASB 11: Joint Arrangements

  • Joint operations
    • operators have rights to assets and obligations for liabilities of arrangement
    • account for shares of individual assets, liabilities, revenues, expenses
  • Joint ventures
    • venturers have right to net assets of venture
    • equity method
  • Mandatory application by FPs from 1 Jan 2013 and NFPs from 1 Jan 2014

Categories of Joint Arrangements

Entities most likely to be impacted by AASB 11

  • Participate in joint arrangements but do not share joint control
  • Have old joint arrangements with limited documentation detailing the terms of the arrangement
  • Have multiple joint arrangements operating under the same documentation
  • Currently apply proportionate consolidation

AASB 12: Disclosure of Interests in Other Entities

  • Provide information that helps users evaluate:
    • nature and risks associated with interests in other entities
    • effects of interests on financial position, performance and cash flows
  • Minimum disclosure requirements to meet objective
  • Mandatory application by FPs from 1 Jan 2013 and NFPs from 1 Jan 2014

Investment Entity Proposals

  • Prohibited from consolidating subsidiaries
  • Required to account for all subsidiaries except those that provide investment-related services at fair value through profit or loss (FVtPL)

Accounting for Interests in Other Entities - Summary

AASB 13: Fair Value Measurement

  • Clarifies the definition of fair value and related guidance
  • Provides a single source of guidance for fair value measurement
  • Requires consistent and enhanced disclosures about fair value measurements
  • Mandatory application from 1 Jan 2013

Entities most likely to be impacted by AASB 13

  • Measure numerous items at fair value
  • Measure liabilities or own equity at fair value
  • Did not previously consider the 'highest and best use' of a non-financial asset when determining its fair value
  • Previously determined fair value on the basis of the market in which they transact most frequently without considering, when applicable, other markets with greater volume and liquidity

Employee Benefits

  • New definition of 'short-term benefits'
    • benefits expected to be settled wholly within 12 months of the reporting date
    • implications for measurement (not classification/presentation)
  • New recognition requirements in relation to DB plans:
    • service cost and interest expense/income on net DB liability/asset recognised in P/L
    • remeasurements, including actuarial gains/losses and 'non-interest' component of return on plan assets in OCI
  • Mandatory application from 1 January 2013

AASB 9: Financial Instruments

  • Mandatory application deferred to 1 Jan 2015
  • Three accounting models for financial assets:
    • amortised cost
    • FVtPL
    • fair value through OCI
  • Measurement requirements for liabilities the same, except that entities can choose to present effects of credit risk on liabilities designated at FVtPL in OCI

Other Proposed Changes to AASB 9

  • Classification and measurement amendments
    • factors to consider when evaluating a business model for managing financial assets
    • 'FV through OCI' classification for financial assets held for cash flows and capital gains
  • Expected credit loss model proposals
    • recognised based on relevant information
    • measured at the present value of probability-weighted estimate
    • simplified approach for trade and lease receivables

Summary of AASB 9 Requirements and Proposals

Stripping Costs Arising from Mining Activities

  • Accounting for 'overburden' that is removed during production phase to provide access to mineral deposits
  • Stripping activities can produce:
  • ore that can produce inventory
  • non-current asset - 'stripping activity asset'
  • Non-current assets accounted for:
  • initially at cost
  • subsequently at cost or revalued amount

Differential Reporting Project

  • Phase I - Reduced Disclosure Requirements (Tier 2) mandatorily apply from 1 July 2013
  • Phase II – Implications of moving from 'reporting entity' to 'GPFS':
    • AASB tentatively decided to remove SAC 1 but retain guidance in another form

Not - for - Profit Specific Matters

ACNC Proposed Differential Reporting Framework

Proposed Financial Reporting Framework

  • Full set of financial statements
  • A declaration by the responsible entity regarding solvency and compliance
  • Applicable accounting framework determined on the basis of entity's:
    • reporting entity status (GPFS or SPFS)
    • public accountability (Tier 1 or Tier 2)

AASB NFP-Specific Projects

  • ED 238 – control in the NFP sector:
    • principles in AASB 10 can be applied in a NFP context using professional judgement and NFP-specific guidance
    • comments due to AASB by 30 June 2013
  • Income from transactions of NFP entities:
    • replace AASB 1004: Contributions
    • to be issued as part of the revised revenue recognition requirements

This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2011 Moore Stephens Australia Pty Limited. All rights reserved.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions