As the financial year draws to a close, many winter sporting teams are already seeing their season slip away from them, and no doubt considerable time will be devoted to the inevitable postmortem.
The same holds true whilst preparing for another financial reporting and audit season – are you ready?
Continuing the analogy, your team members need to be in top condition, well-primed and understand the game you are playing to ensure you come out on top.
I am a big believer in the 4 P’s: Preparation Prevents Poor Performance!
In my experience, preparation is the key to a smooth reporting season, which also includes an efficient and cost-effective quality audit. So how do you get your preparation right in the current environment, particularly with personnel challenges and lingering COVID impacts?
The good news is there are minimal changes to accounting standards for the current year, save for those that will impact on clients currently preparing special purpose accounts (more on that later).
It is also expected that ASIC will continue their focus on disclosures within Company’s “Review of Operations,” Asset values & Impairment, Going Concern and Revenue.
Auditors are also experiencing elevated levels of ‘scope creep’ where they are asked to assist with the application of accounting standards, potentially increasing the risk of independence issues, which can impact on overall audit quality and therefore lead to significant time and cost impacts.
Many preparers can underestimate the time taken to prepare financial statements and supporting documents for an audit or even resolve issues, so the key is starting earlier: set realistic timetables and understand the crucial accounting issues that are likely to impact your audits. Management of Board expectations may also be necessary.
Accounting issues that need to be discussed specifically with the auditors or requiring external assistance, particularly those more difficult accounting issues, should all be identified early – after all, surely, for most companies, all the issues that will occur in the financial year have either already happened or are known at this stage.
Certain issues should be resolved well before the commencement of the final audit visit – share based payments, R&D claims, acquisitions, to name a few – alleviating pressure from the busier months of August and September.
Whilst acknowledging things do not always go to plan, the impact of missing timetables does have a flow on effect to audit resourcing, flexibility and costs.
It is critical that management teams drive the financial reporting process, allowing sufficient time for the identification of issues, preparation of reports, review by the board and the overall audit process.
Removal of Special Purpose Financial Statements
Additional preparation time will need to be set aside for those entities that are currently still preparing special purpose financial statements, specifically those required to lodge financial statements with ASIC.
These entities are now required to comply with all the recognition and measurement requirements of Australian Accounting Standards.
However, entities currently preparing special purpose financial statements will be impacted by new disclosure requirements, including those covering consolidations, related party transactions, financial instruments, and taxation, although there will be a simplified disclosure version for less complex entities.
Companies that did not early adopt last year will be required to retrospectively change comparative information.
Not for profit entities that are currently preparing Reduced Disclosure Accounts will also need to transition to the Simplified Disclosure Regime.
It’s clear that all businesses are facing challenges on a number of fronts, however, to ensure that your upcoming financial reporting season is as smooth and efficient as possible, additional early preparation will go a long way to ensure that you come out of the end of season review on top of the ladder.
This article first appeared in the Winter 2022 issue of HLB Mann Judd’s Client Alert.