The Australian Securities and Investments Commission (ASIC) has released its second report applying its new integrated financial reporting and audit surveillance approach which covers the period 1 July 2023 to 30 June 2024.
During this review cycle, ASIC reviewed 188 financial reports. 157 of these were ASX-listed entities and 31 were large unlisted entities. The surveillances resulted in ASIC contacting 39 entities in respect of 61 issues and 25 entities adjusting previously reported financial information to the tune of $1.9 billion.
Key findings
ASIC continued its focus on the operating and financial review (OFR). Of the 20 entities contacted in relation to their OFRs, 16 of them made additional or improved disclosures, mainly to ensure a balanced narrative by disclosing material business risks that could hinder the achievement of business plans. A less common deficiency noted by ASIC was that information was dispersed throughout the financial report or other public announcements rather than including all this information in the OFR.
Key areas in which accounting issues were raised by ASIC were:
- The OFR
- Impairment and asset values
- Non-IFRS information
- Disclosures in financial reports (including comparative information, going concern, operating segments, and laws and regulations disclosures)
- Revenue recognition
- Share-based payments
Other areas (including consolidated financial statements not being lodged, tax accounting and lease accounting).
Extract from ASIC’s Report 799 showing issues raised in financial reporting surveillances
Previously grandfathered companies
Previously grandfathered companies are on ASIC’s radar. During this review cycle, ASIC included 14 such companies in the review sample. While ASIC concluded that the financial statements of these companies are of good standard, obvious errors were noted, such as the absence of comparative information. Furthermore, ASIC expressed concern regarding whether all previously grandfathered companies are now lodging financial reports.
Sustainability reporting
ASIC monitored voluntary reporting on sustainability and climate change during the period under review. Most surveillance related to listed entities’ voluntary reporting under the Taskforce on Climate-Related Financial Disclosures (TCFD) recommendations. While areas for improvement were observed, ASIC did not identify any concerns about misleading or deceptive disclosure.
ASIC’s findings will be used to inform its ongoing work to support the introduction and administration of the mandatory climate-related financial disclosure regime which commences on 1 January 2025 for the largest entities.
Expectations of audit committees, directors and preparers
In its report, ASIC calls on audit committees, directors and preparers to play their roles in supporting quality financial reporting and audits to ensure:
- high-quality and timely financial information underpinned by robust position papers;
- suitable allocation of resources, skills and expertise to the reporting process;
- clear and effective communications with the auditor; and
- robust auditor selection.
Looking ahead
ASIC has indicated that its financial reporting surveillance program will include the following going forward:
- more large proprietary companies that were previously grandfathered
- registrable superannuation entities lodging financial reports with ASIC for the first time
- climate-related risks
- consolidated entity disclosure statements.
This article was first published in The Bottom Line, Issue 21.