The Australian Securities and Investments Commission (ASIC) has released its financial report ‘hit list’ for the June 2015 reporting season. And once again they seem to be targeting the usual troublesome areas.
While many of our clients no longer fall under ASIC’s reporting regime, these focus areas are a timely reminder to boards and management about their obligations to the financial report. It also provides a basis for discussions both within the entity and with the external auditor.
If you’re on a company board or part of its management team, here are five areas you should make a point of reviewing:
1. Asset Values
Impairment should be reviewed at least once a year to ensure the company’s assets are recorded at the correct value. The use of varying models and unrealistic assumptions is still an area of significant risk for ASIC. When developing impairment calculations, make sure you always use appropriate models, realistic cash flows and relevant inputs.
2. Changes in Accounting Policies
Any policies the entity adopts should be reviewed to make sure they’re consistent with operational practices and industry norms.
One of the most significant policies relates to the entity’s revenue recognition (i.e. when revenue is recorded in financial statements). You need to understand:
○ when services have been performed
○ when control of goods is passed to the supplier
○ how transactions are classified in the financial statements.
3. Material Disclosures
Financial statements need to disclose information relevant for decision making. If possible (i.e. if accounting standards allow), the board and management should minimise immaterial disclosures to make the report more streamlined and concise. Not everyone using the report will have the financial savvy to understand its contents, so try to keep it as simple as possible without onerous disclosures. And don’t forget to disclose any significant judgements, assumptions and events in the financial statements.
4. The Role of Directors
While Directors and officeholders don’t need to be accounting experts, they have a fiduciary duty to challenge accounting treatment, estimates and disclosures in a financial report. And if their understanding of a transaction or balance doesn’t reflect the underlying substance, they should seek advice from a professional.
5. Other Entities
ASIC still monitors affiliated entities and related entities to ensure all applicable transactions have been captured. Many of our not-for-profit clients have seen mergers and other Memorandums of Understanding in the sector, so you need to consider their impact on financial statements.
By reviewing these five areas, and making any necessary changes, you shouldn’t have any issues when it comes to submitting your financial report with ASIC.
But if you’re not sure what you need to do, or would like more information, get in touch with us here at KLM Accountants. As part of our range of financial services we can:
● prepare financial statements
● help management prepare their own financial statements
● offer technical advice, such as applying accounting standards and what level of disclosure is needed
● provide face-to-face contact with boards/committees as advisors.
Don’t risk being on ASIC’s ‘hit list’. Contact KLM Accountants today to book a free consultation meeting.