ASIC’s focus areas for FY18 Financial Reports

Prior to the end of each financial year, ASIC releases guidance to publicly listed companies (and other reporting entities) on its “focus areas” for financial reports. ASIC has recently released its guidance for FY18: FY18 financial reports – ASIC focus areas

Impact of new accounting standards

A number of new accounting standards have been released which will materially affect the preparation of FY18 financial report, including standards which vary:

revenue recognition;
valuation of financial instruments (including hedge accounting and loan loss provisioning);
liabilities relating to leases; and
general identification of assets, liabilities, income and expenses.

Directors are primarily responsible for ensuring that these new accounting standards are appropriately applied. Given the wide-ranging and material nature of the changes to the standards, we recommend that directors and management (who have not already started to do so) immediately commence assessing the impact of these changes.

In particular, the changes to the revenue recognition could have significant impact on the timing and amount of revenue recognised under existing contracts for future deliverables. Substantial resources, time and effort may need to be devoted to working through how these changes impact your FY18 financial reporting.

Accounting estimates

ASIC has also reminded directors and preparers of financial reports that the recoverable amounts of non-tangible assets (e.g. goodwill) as well as tangible assets (like plant and equipment) continue to be a focus. Directors and auditors should ensure that assumptions are reasonable having regard to historical cash flows, market conditions and funding costs.

Accounting policy choices

In relation to the following areas of accounting policy choices, ASIC has provided the following guidance:

revenue recognition – directors and auditors should review an entity’s revenue recognition policies to ensure that revenue is recognised based on the substance of transactions;
expense deferral – expenses should only be deferred where there is an “asset” as defined in the accounting standards, it is probable that economic benefits will arise, and intangible accounting requirements are met;
off-balance sheet arrangements – off-balance sheet arrangements to consider whether controlled companies should be consolidated as well as the appropriate disclosures being made; and
tax accounting – preparers of financial reports should ensure that the differences between tax and accounting treatments are properly understood.

Key disclosures

Reminders were also made in relation to full and appropriate disclosures where estimations are subject to uncertainty or if the application of accounting policies is subject to significant judgment.

If you require more information about these recommendations or how it affects your business, please contact Anand Sundaraj, Bob Ker or Johnson Pang.