ASIC’s heightened scrutiny of ‘big three’ accounting standards highlight inaction won’t be tolerated.
On the back of ASIC’s recent media release calling on immediate action for companies to explain and quantify the impact of changes to accounting standards for revenue, leases, and financial instruments, RSM’s National Technical Director Ralph Martin has reinforced the need for urgent attention on the part of directors to ensure the quality of the financial report.
ASIC Commissioner, John Price, said: “We are concerned that some companies may not have adequately prepared for the impact of new accounting standards that can significantly affect results reported to the market.”
ASIC also commented that:
“Public disclosure on the impact of the standards, and timely implementation is important for investors and market confidence. Information that there will be no material impact may also be important information for the market.”
Ralph Martin, RSM’s National Technical Director commented on ASIC’s media release: “With ASIC inspecting over 200 sets of financial statements in each reporting period, directors need to be comfortable that the disclosures they have made are sufficient to stand up to regulatory scrutiny. ASIC have made it clear that they do not believe that it is acceptable for companies to state that they have not yet assessed the impact of the new standards. The new requirements for revenue and financial instruments come into effect on 1 July 2018 for most entities. Therefore, it would be difficult to argue that companies are unable to estimate the impact of these standards in financial statements published in August or September. This is a call to action for those companies that have not yet made such an assessment.”
While many of the areas covered in ASIC’s six-monthly publication of its focus areas are familiar, its focus on the “big three” new accounting standards suggests that this will be the driving force behind its financial reporting surveillance process for the foreseeable future.
Its primary area of focus is now the impact of:
- AASB 15 Revenue from Contracts with Customers
- AASB 9 Financial Instruments
- AASB 16 Leases
Other areas of interest are unchanged from previous years, but continue to require close attention from directors and management, particularly in ensuring that significant judgments made are reasonable and supportable.
- Impairment testing, and asset values, particularly assumptions incorporated into discounted cash flow models to support the carrying value of goodwill and other intangibles
- Accounting policies for revenue recognition
- Uncertain tax positions, and the recoverability of any deferred tax assets
- Disclosure of key estimates and judgments, and the inclusion of sensitivity analysis where appropriate
RSM’s National Technical team specialise in providing technical accounting consultations and assistance. This includes impact assessments and other support for the application of these significant new accounting standards.