ASIC issues guidance on what ‘useful’ and ‘meaningful’ financial reporting should include for the 30 June 2022 reporting period

By Michelle Eastwell, Chris Wright and Grace Baty

With the EOFY reporting period approaching, ASIC has urged directors, preparers of annual and half-year reports, and auditors to assess whether companies’ 2022 financial reports provide useful and meaningful information for investors. To assist, the regulator has highlighted a number of key areas for attention, in particular:

• calculation of asset values;
• provisions for matters such as onerous contracts, leased property make good, mine site restoration, financial guarantees given and restructuring;
• solvency and going concern assessments;
• events occurring after year end and before completing the financial report, which should be reviewed as to whether they affect assets, liabilities, income or expenses at year-end or relate to new conditions requiring disclosure; and
• disclosures in the financial report and Operating and Financial Review (OFR).

ASIC has noted that for many companies, this reporting period is set against a backdrop of changing market conditions and uncertainties. In addition, there are increasing demands from investors for better information on uncertainties, key assumptions, business strategies and risks.

ASIC has recommended that directors and management assess how the current and future performance of their company, the value of its assets and its provisions, and business strategies may be affected by various changing circumstances, highlighting the following for particular consideration:

• COVID-19 conditions and restrictions during the reporting period;
• changes in customer preferences and online purchasing trends;
• use of virtual meetings and more flexible working arrangements;
• the discontinuation of financial and other support from governments, lenders and lessors, including any possible increases in the level of insolvencies;
• the availability of skilled staff and expertise;
• ongoing restrictions to deal with COVID-19 in different jurisdictions;
• the impact of rising interest rates on future cash flows and on discount rates used in valuing assets and liabilities;
• increases in oil prices;
• geopolitical risks, including the Ukraine/Russia conflict;
• commitments and policies on climate and carbon emissions by governments;
• technological changes and innovation;
• legislative and regulatory changes; and
• other economic and market developments.

While companies may continue to face uncertainties about future economic and market conditions, ASIC has reminded companies that the assumptions that underly estimates and assessments for financial reporting purposes should still be reasonable and supportable.

As such, ASIC has emphasised the need for appropriate experience to be applied in the reporting process, and the importance of directors and auditors being given sufficient time to consider reporting issues and to challenge assumptions, estimates and assessments.