The Australian Securities and Investments Commission (ASIC) has released the key focus areas for companies' financial reporting under COVID-19 conditions for the reporting period ending June 30, 2021.
ASIC will conduct its regular review of the full-year financial reports of selected larger listed entities and other public interest entities on June 30, focusing on entities and industries impacted by the current conditions.
The regulator explained that directors, auditors, and those preparing financial reports must take note of:
As COVID-19 conditions continue to evolve, ASIC Commissioner Cathie Armour emphasised the significance of submitting high-quality financial reports and related disclosures to keep investors informed.
“The circumstances of companies and the environment in which they operate can change significantly from one reporting period to the next. This could significantly affect assessments of asset values and financial position,” Armour said.
“Disclosing key assumptions, risks, the drivers of results, management strategies, and prospects will be important for investors and other users of financial reports. This includes both full-year and half-year reports.”
Entities might continue to face uncertainties about future economic and market conditions and their impact on businesses. However, ASIC reminded entities to provide reasonable and supportable assumptions underlying estimates and assessments for financial reporting.
“Assumptions should be realistic and not overly optimistic or pessimistic,” ASIC said, emphasising that useful and meaningful disclosures about business impacts and potential uncertainties are crucial.
“Uncertainties may lead to a wider range of valid judgements on asset values and other estimates. These uncertainties may change from period to period. Disclosures in the financial report about uncertainties, key assumptions, and sensitivity analysis will be important to investors,” ASIC added.
The OFR should also complement the financial report and explain how the pandemic impacted the entity's business – detailing the underlying drivers of the results and explaining the entity's financial position, risks, management strategies, and prospects.
For the reporting and audit processes, ASIC expects entities to apply appropriate experience and expertise, particularly in more difficult and complex areas, such as asset values and other estimates.
“Directors and auditors should be given sufficient time to consider reporting issues and to challenge assumptions, estimates, and assessments,” it said.
“Directors should make appropriate enquiries of management to ensure that key processes and internal controls have operated effectively during periods of remote work. Where possible, auditors should be given access to perform procedures on-site rather than remotely, including stock counts and system walk-throughs.”
ASIC extended the deadline for listed and unlisted entities to lodge financial reports under Chapters 2M and 7 of the Corporations Act 2001 by one month for balance dates from June 23, 2021, to July 07, 2021, inclusive.
The extension aims to assist with any pressures on resources for smaller entities' audits and provide adequate time for the audit process' completion, given the challenges presented by the COVID-19 pandemic conditions.
“When deciding whether to depart from the normal statutory deadlines, directors should consider the information needs of shareholders, creditors, and other users of their financial reports, as well as meeting borrowing covenants or other obligations,” ASIC said.
