ASIC urges directors, preparers of financial reports and auditors to assess the impact of uncertain market and economic conditions when reporting for full and half-years ending 31 December 2023.
Key findings in ASIC’s first integrated financial reporting and audit surveillance report (Report 774 Annual financial reporting and audit surveillance report 2022–23) form the basis for identifying areas for particular consideration, including:
impairment and asset values;
provisions;
events occurring after year end and before completing the financial report;
disclosures in the financial report and operating and financial review (OFR); and
the impact of a new accounting standard for insurers.
ASIC Commissioner Kate O’Rourke said, ‘Directors should ensure that company financial reports provide investors with useful and meaningful information on the impact of changing and uncertain economic and market conditions and other developments on their company’s financial position and future performance.’
‘Directors should ensure there are adequate resources, skills and expertise applied to promote quality in the reporting process so that assumptions underlying estimates and assessments for financial reporting purposes are reasonable and supportable.
‘Finally, auditors should focus their professional judgement and scepticism on those areas of the financial report preparation process that are most reliant on estimates and are uncertain. Auditors occupy a privileged position in the financial reporting cycle and are essential to maintaining market integrity,’ said Ms O’Rourke.
Disclosures in the financial report about uncertainties, key assumptions and sensitivity analysis are important to investors. Uncertainties may lead to a wider range of valid judgements on asset values and other estimates. These uncertainties may change from period to period and documenting and updating the information supporting the judgement is expected.
Directors and management should assess how the current and future performance of an entity, the value of its assets and provisions and business strategies may be affected by changing circumstances, uncertainties and risks.
