Almost 25% of financial reports reviewed by ASIC result in enquiries on the appropriate accounting treatment

On 25 January 2019, the Australian Securities and Investments Commission (ASIC) published its findings from its surveillance on 30 June 2018 financial reports (MR 19-014).

Out of the 215 financial reports reviewed, ASIC sent ‘please explain’ letters to 55 entities regarding 79 accounting matters. This is a significant increase compared to the 54 accounting matters raised with entities during ASIC’s equivalent review of 30 June 2017 financial reports.

A comparison of accounting matters raised (2017 to 2018) reveals that impairment and asset values remains an area of concern for ASIC, and given the imminent application of the new accounting standard for revenue (AASB 15 Revenue from Contracts with Customers), ASIC is also starting to pay more attention to entities’ revenue recognition policies.

Topic 2018 2017
Impairment and other asset values 28 20
Revenue recognition 18 8
Tax accounting 11 8
Consolidation accounting 4 2
Business combinations 3 3
Expense deferral 3 4
Other matters 12 9
  79 54

It should be noted that not all enquiries will necessarily lead to material restatements. The media release notes that matters involving 13 of the entities were concluded without any restatements required. ASIC also does not pursue immaterial disclosures that may add unnecessary clutter to financial reports.

Enquiries in each of the above areas are highlighted below:

IMPAIRMENT - Goodwill, exploration & evaluation expenditure and PPE
Reasonableness of cash flows and assumptions not being supportable, including:
  • Assumptions from external sources not assessed for consistency and relevance
  • Forecast cash flows exceeded actual cash flows for a number of reporting periods.
Incorrectly determining the carrying amount of a cash-generating unit (CGU), including:
  • Level for identifying cash-generating units (CGUs) too high
  • Omitting some assets from carrying amount of CGU assets, e.g. inventories, trade receivables and tax balances
  • Incorrectly deducting liabilities from the carrying amount of a CGU.
Fair value calculations using discounted cash flows with many management inputs (level 3 fair value) which may not represent market participant assumptions.
Ignoring impairment indicators such as:
  • Adverse changes in market conditions, or
  • Where net assets > market capitalisation.
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Insufficient disclosures regarding:
  • Key assumptions, including quantifying growth rates and discount rates
  • Sensitivities where a reasonably possible change in one or more assumptions could easily result in an impairment loss, and
  • For fair values, the valuation techniques used.


Please refer to the following resources for more information:
Goods or services to be provided in future.
Multiple deliverables (goods and services).
Adequacy of tax expense.

Refer BDO’s article on uncertainty of income tax treatments
Whether probable that future taxable income is sufficient to enable recovery of deferred tax assets.
Controlled entities not consolidated.
Failing to consolidate a loan securitisation arrangement.
Business combination inappropriately accounted for as a ‘common control’ transaction.
Expenses capitalised as assets that should have been charged to profit or loss (i.e. do not meet criteria for recognition as an asset).
Capitalising costs in anticipation of recovery under an insurance claim.
Improve quality and completeness of disclosures.
Disclosure requirements are principles-based and should include information to enable user to understand the judgements made and their effect, i.e. disclose:
  • Key assumptions
  • Reason for judgement
  • Alternative treatments and quantify impacts.
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