ASIC has issued guidance to entities preparing their 31 December 2008 financial and audit reports.
The guidance incorporates specific issues identified through ASIC’s review of 30 June 2008 financial reports. ASIC is moving to publish the results of its regular reviews half-yearly so that entities are better informed about ASIC’s key areas of focus and the specific issues that should be addressed to comply with the relevant accounting standards.
The following information summarises the key findings of ASIC’s recent review and specific guidance for the upcoming reporting period:
1. Going concern: Given the extent and nature of current market conditions, directors should continue to focus on the appropriateness of the going concern assumption in the preparation of financial reports. This assessment includes having regard to reduced liquidity and ability to refinance debt or raise new funds, as well as compliance with lending covenants.
2. Impairment of assets: ASIC’s review of reports found write-downs of intangible assets at 30 June 2008 were less than one per cent of the total value. Given changes in international and domestic markets since 30 June 2008, ASIC expects further write-downs. Directors should maintain a strong focus on impairment of intangibles and other assets not reported at fair values (including relatively recently acquired assets) at 31 December 2008.
3. Determining fair values: In the upcoming reporting period, ASIC advises directors to continue to focus on the use of market information for 31 December 2008 financial reports, including exposures to changes in the values of assets held by sponsored defined benefit superannuation funds.
4. Off balance sheet arrangements: In its recent review, financial reports and other public information for some entities indicated the possible existence of off balance sheet arrangements. However, the financial reports provided no explanation of the nature and scale of the arrangements or the reasons why assets and liabilities were not on balance sheet.
In the upcoming financial reporting period, directors should understand the risks and benefits to the entities, and the circumstances under which assets and liabilities are not recognised on the balance sheet. Regard should also be given to the risks that could flow under future adverse economic and market conditions in determining whether an off balance sheet arrangement should be on balance sheet.
5. New financial instrument disclosures: ASIC’s review found that some disclosures did not indicate the extent of use of financial instruments. In the 31 December 2008 reports, directors should review the adequacy of their financial instrument disclosures.
