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

On 7 February 2020, the Australian Securities and Investments Commission (ASIC) published its findings from its surveillance on 30 June 2019 full-year financial reports (MR 20-026).

Out of the 200 financial reports reviewed, ASIC sent ‘please explain’ letters to 47 entities regarding 80 accounting matters. This is slight increase compared to the 79 accounting matters raised with entities during ASIC’s equivalent review of 30 June 2018 financial reports. These enquiries have resulted in $590 million adjustments to profit or loss since ASIC’s last media release on findings (8 August 2019).

A comparison of accounting matters raised (2019 to 2018) reveals that impairment and asset values remains the top area of concern for ASIC, and revenue recognition comes a close second. As expected, enquiries relating to revenue recognition have increased due to the first-time application under the new revenue standard, AASB 15 Revenue from Contracts with Customers.

Topic 2019 2018
Impairment and other asset values 25 28
Revenue recognition 23 18
Tax accounting 9 11
Consolidation and equity accounting 2 4
Business combinations 4 3
Expense deferral 4 3
Other matters (including provisions) 13 12


80 79

It should be noted that not all enquiries will necessarily lead to material restatements. The media release notes that matters involving 12 of the entities were concluded without any restatements required.

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:


Contracts that involve multiple performance obligations where one or more obligations is to be provided in future.

Revenue not disaggregated with regard to how nature, timing and uncertainty of revenue and cash flows are affected by economic factors.

Accounting policies need to be more clearly described.


Adequacy of tax expense.

Refer BDO’s Accounting News articles on income tax treatments (June 2019, Aug 2019 and Nov 2019)

Whether probable that future taxable income is sufficient to enable recovery of deferred tax assets.


Controlled entities not consolidated.

Failing to equity account an interest where there are indicators of possible significant influence.


Significant deferred consideration.
Inadequate disclosures.
Other business combinations accounted for incorrectly.  


Expenses capitalised as assets that should have been charged to profit or loss (i.e. do not meet criteria for recognition as an asset).


Adequacy of provisions for rehabilitation, warranty claims and onerous contracts.


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.


Entities could have provided better explanations of the impact of adopting the new leases standard, AASB 16 Leases, including the nature and causes of any changes.

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