ASIC Financial and Audit Reports for the half year ending 31
The Australian Securities and Investments Commission has
recently issued guidance for companies preparing 31 December 2008
financial and audit reports. The guidance stems from ASIC's
review of a cross-section of 30 June 2007 financial reports and
aims to ensure that company directors and financial officers are
aware of specific issues concerning financial reporting and of
ASIC's key areas of focus.
Companies and directors are reminded to focus on disclosures
that are relevant to all stakeholders and not just shareholders.
The disclosure made by entities should enable the reader to acquire
a proper understanding of the business and the risks faced in the
current, and future economic and market conditions.
The key areas of concern are:
Directors should be mindful of the 'going concern'
assumption and whether or not this assumption is appropriate in the
current circumstances of the company. Issues of liquidity, debt
restructuring, and the ability of a company to raise new funds
should be considered in making this assumption. Further
consideration should be given to future compliance with debt
Impairment of Assets
As financial markets have further deteriorated since 30 June
2008, there is an expectation that writedowns against assets will
continue to rise. In particular, directors should focus their
attention on write-downs against intangible assets and those other
assets not reported at fair-value. ASIC is looking for a
company's assets impairment review process to be robust and
transparent ensuring investors can be confident in the reported
value of assets.
Key areas that should be addressed are:
discount rates and growth rates used in the value in use
explanations for using forecast periods of greater than five
sensitivity analysis in relation to changes in key
Determining Fair Value
ASIC noted that many of the valuations conducted to 30 June 2008
were done so using director's valuations rather than
independent valuations. Whilst this is not problematic, ASIC's
view is that valuation methods and assumptions (eg financial
models), should be fully disclosed including whether the fair value
reckoning is supported by market evidence.
Off-Balance Sheet Arrangements
ASIC have indicated that whilst financial reports and public
disclosures imply off-balance sheet arrangements are being used by
companies, these arrangements are not being adequately disclosed in
financial reports. Companies are being asked to disclose the nature
and extent of the arrangements and the reasons why assets and
liabilities are not on-balance sheet.
The risks and benefits of off-balance sheet arrangements should
be well understood by directors as should the circumstances that
give rise to assets and liabilities not being recognised on-balance
sheet. Directors should also be mindful of the longer term risks in
deciding whether an off-balance sheet financial arrangement should,
in fact, be on-balance sheet.
New Financial Instruments Disclosure
ASIC is looking for companies to more fully disclose the extent
of financial instrument usage in line with AASB 7, that is, the
full disclosure of:
debt security provided;
debt maturity profiles;
risks associated with financial instruments; and
It is recommended that companies and directors take considerable
care in signing off on financial reports for the half-year ending
31 December 2008. It is important to ensure that the completed
financial reports are lodged with ASIC and ASX (if appropriate)
within the legislative time frames, that is, within 75 days of
expiry of the period: s 320(1) Corporations Act 2001 and ASX
Listing Rule 4.2A.
The global economic slowdown is having an adverse impact on many businesses, often resulting in lower cash flows.
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