Impairment still the top area for ASIC surveillance of financial reports; followed by the OFR

Impairment still the top area for ASIC surveillance of financial reports; followed by the OFR

Every six months the Australian Securities and Investments Commission (ASIC) publishes an anonymised summary of areas where it has made enquiries to companies (particularly listed entities) regarding the appropriate accounting treatment in their financial reports.

For 30 June 2021, as in previous surveillance periods, impairment of financial and non-financial assets is still the biggest source of ASIC’s enquiries to companies, with disclosures in the Operating and Financial Review (OFR), which is not part of the financial statements, coming a close second. This suggests that when a company’s financial report is selected for surveillance, ASIC’s emphasis goes beyond just the accounting in the financial statements and includes the board’s disclosure about risks to the company’s strategy and future prospects.

Media Release MR 21-354 summarises the results of ASIC’s review of the financial reports of 150 listed entities for the period ended 30 June 2021. ASIC made enquiries to 29 entities about 53 matters, with 14 relating to impairment and expected credit losses.


With ‘Omicron’ hindsight it is interesting to note that when announcing these results on 15 December 2021, ASIC Commissioner, Sean Hughes said “The findings of this review emphasises that directors and auditors should continue to focus on impairment of assets, particularly as some businesses may be adversely affected in a post-COVID environment or by continuing pandemic impacts in overseas markets.”

In Australia many businesses continue to be impacted by the ongoing pandemic, and supply chain issues and staff shortages due to illness and border closures are having an ongoing effect on the bottom line. These factors may potentially impact impairment models in the short-term, and cause business risks that ought to be disclosed in the OFR.
Below is a summary of the enquiries made by ASIC on companies’ 30 June 2021 financial statements.


Number of enquiries

Enquiries cover….

Impairment (carrying amounts of goodwill, other intangibles and property, plant and equipment)


  • Reasonableness of cash flows and assumptions, having regard to historical trading results and the impact of uncertainties due to COVID-19 conditions
  • Insufficient disclosures regarding:
    • Key assumptions used (discount rates and growth rates)
    • For fair values less costs of disposal – valuation techniques and inputs used
    • Events and circumstances leading to a reversal of previous impairment losses, including key assumptions.

Expected credit losses (ECL) on loans and receivables


  • Entity’s approach to estimating ECL on its portfolio of invoice finance receivables, including:
    • Treatment of reassignment arrangements
    • How forward-looking assumptions address the impacts of COVID-19.



  • Adequacy of disclosure of risks to a company’s strategy and future financial prospects outlined in the OFR.

Revenue recognition


  • Timing of revenue recognition for online sale of goods and whether control had passed to customer at the time of dispatch
  • Nature and recognition of various fees for providing finance
  • Whether labour hire services were provided as principal or agent.

Tax accounting


  • Whether probable that future taxable income will be sufficient to recover deferred tax assets for tax losses where:
    • The use of tax losses relies on longer term forecasts
    • There is a deferred tax asset for tax losses, despite a history of losses and a small current year profit supported by COVID-19 government assistance.

Expense deferral (including SAAS implementation costs)


  • Treatment of prepaid costs under an arrangement for expenditure over a five-year period (the entity has committed to improving disclosure of the arrangement in future financial reports)
  • Capitalisation of configuration and customisation costs under a cloud computing arrangement (as per IFRIC agenda decision of April 2021).

Business combinations


  • Most of the consideration allocated to goodwill (whether any other intangible assets were acquired).



  • Classifying unsecured debt maturing within 12 months of reporting date as non-current
  • Classification of a convertible note as a liability, despite the instrument indicating there may be an equity component.



  • Adequacy of make good provisions in connection with leased properties.

Non-IFRS profits


  • Should not be presented in a misleading manner
  • If asset impairment losses were excluded from a non-IFRS profit measure in a previous year, reversals of impairment should also be excluded in subsequent years.

Other matters


  • Various (information not provided in MR 21-354).




Disclose material business risks in the OFR

On the same day that ASIC published its findings from its surveillance of 30 June 2021 financial reports, it also published Media Release MR21-355 urging directors to put a greater focus on disclosing in the OFR, material business risks which could affect the achievement of the listed entity’s strategies and prospects.

MR21-355 reminds directors that the OFR complements the financial statements by ‘…telling the story about the drivers of the company’s results, its strategies and prospects. This includes the material non-generic risks to those achieving the financial prospects described.’

Regulatory Guide 247 Effective disclosure in an operating and financial review (RG 247) provides guidance to directors of listed entities for disclosing useful and meaningful information to investors in the OFR. It anticipates a ‘Goldilocks’ approach to disclosing information about business risks (i.e. should not be overdone or underdone). In particular:
  • RG 247.62 notes that it is likely to be misleading to discuss prospects for future financial years without referring to material business risks that could adversely affect the achievement of the prospects in future financial years
  • However, RG 247.63 notes that risks are only disclosed if they could affect the achievement of future prospects. An exhaustive list of generic risks that might potentially affect many entities should not be disclosed.

Need assistance?

Please contact our IFRS & Corporate Reporting team if you require assistance on any financial reporting matters for your 31 December 2021 or 30 June 2022 financial reports.