ASIC makes inquiries into inappropriate accounting treatments

In announcing the results from a review of the 31 December 2018 financial reports, ASIC said it has made inquiries of 26 entities mostly related to impairment of non-financial assets and inappropriate accounting treatments.

The review covered 85 full-year financial reports and 40 half-year reports, and focused on the application of major new accounting standards on revenue and financial instruments.

The commission has instructed directors and auditors to continue to focus on values of assets and accounting policy choices in 30 June 2019 financial reports.

Additionally, it advised them to pay attention to impairment of non-financial assets to ensure that the market is properly informed about asset values and the expected future performance implied by those values.

“We continue to find instances where companies have made unrealistic and unsupportable assumptions about future cash flows,” ASIC said.

“Directors and auditors should also focus on the impact of the new accounting standards on revenue and financial instruments, which can materially affect reported financial position and results.”

ASIC’s risk-based surveillance of the financial reports of public interest entities for reporting periods ended 30 June 2010 to 30 June 2018 has led to material changes to 4 per cent of the financial reports of public interest entities it reviewed. The main changes related to impairment of assets, revenue recognition and expense deferral. 

Public announcements of material changes

ASIC noted it will publicly announce when a company makes material changes to information previously provided to the market. In addition to improving the level of market transparency, these announcements are intended to make directors and auditors of other companies more aware of ASIC’s concerns so that they might avoid similar issues.

Since the last release on findings in January this year, ASIC has issued media releases in relation to changes by Yellow Brick Road Holdings Limited, Mustera Property Group Limited, Prime Financial Group Limited, Pro-Pac Packaging Limited, and Pioneer Credit Limited. The total adjustments to profit for the first five of these entities were $185 million.