Clarity in financial reporting – July 2021 monthly newsletter has been saved
Clarity in financial reporting – July 2021 monthly newsletter
Responding to regulatory focus areas and more
Our monthly Clarity in financial reporting newsletter informs you of key focus areas in financial reporting for the month: actions, developments, and dates.
Responding to regulatory focus areas
Key actions: Management and boards need to ensure ASIC’s key focus areas are appropriately considered and responded to when finalising financial reporting in the current period.
As noted in our June email, ASIC released its focus areas for 30 June 2021 and updated its frequently asked questions (FAQs) on COVID-19 implications for financial reporting and audit. In addition, ASIC announced the results of its review of December 2020 financial reports.
Whilst ASIC focuses on many difference aspects, key matters include:
ASIC has a major focus on impairment, particularly that:
- Key assumptions supporting the carrying amount of assets are reasonable and supportable (the release outlines various factors considered key assumptions)
- Probability-weighted assessments are undertaken to address uncertainties
- Clear disclosures are made, including estimation uncertainties, changing key assumptions and information about probability-weighted assumptions
ASIC’s FAQs clearly outline an expectation that entities will make any necessary adjustments in their June 2021 financial reports to reflect the recent IFRIC® agenda decision on configuration or customisation costs in a cloud computing arrangement. For more information, see our Clarity publication Software-as-a-Service arrangements
Transparent disclosures, particularly in light of the ongoing uncertainties around the current COVID-19 outbreaks, are critically important in communicating the entity’s story, how it has been affected by COVID-19 and the emerging recovery, and details of risks, management strategies and future prospects. Essential disclosures to consider include:
- Changes in circumstances since prior reporting periods, ensuring they are adequately reflected and clearly explained in the financial report and operating and financial review.
- Clear and understandable disclosure of the impacts of any government support received, including accounting policies and amounts received or repaid.
- Explaining how recent COVID-19 outbreaks and the resultant restrictions and government responses have affected the entity, including the impact on assumptions and future expectations, and considering how relevant events subsequent to the end of the reporting period are taken into account or disclosed.
- Including clear information about climate change and other emerging risks, including the entity’s governance process, its strategy, how the entity manages the associated risks, and key metrics and targets.
We have also released a Clarity publication, Responding to ASIC focus areas, which explores the ASIC releases in more detail, outlines additional considerations, and provides links to further resources.
Two minute update
Why does it matter? Ensure you are aware of the latest developments and consider their impacts on your organisation.
A summary of recent developments:
Climate and sustainability reporting developments
The move toward mandatory sustainability reporting using globally consistent standards continues to accelerate. Key recent developments include:
- CDP, the Investor Group on Climate Change (IGCC) and the Principles for Responsible Investment issued a report outlining a plan for mandatory Task Force on Climate-related Disclosures (TCFD) aligned disclosure in Australia. The report calls for a phased approach commencing in 2021/22 and culminating in suggested legislative measures from 2024/25 (press release).
- The Board of the International Organization of Securities Commissions (IOSCO) published a report that explains its vision and expectations for the IFRS® Foundation’s work towards a global baseline of investor-focussed sustainability standards to improve the global consistency, comparability and reliability of sustainability reporting (press release).
Determining net realisable value (NRV) of inventories
IFRIC finalised an agenda decision on the costs an entity includes as the ‘estimated costs necessary to make the sale’ when determining the net realisable value of inventories. The agenda decision explains that such costs are not limited to incremental costs of selling inventories, but that an entity must use its judgement in determining which costs are necessary to make a sale considering its specific facts and circumstances.
The impacts of agenda decision will depend on the entity’s existing policies and its specific facts and circumstances. Whilst entities will have a reasonable timeframe in which to respond to the agenda decision, its implementation may be complex and entities with material inventories should begin to assess whether overhead and other costs should be taken into account in NRV calculations. Entities may need to consider disclosing that the agenda decision has not been applied in June 2021 financial reports and that its impacts are being assessed.
Changes to reporting requirements for registered charities
On 30 June 2021, the Council on Federal Financial Relations announced revised financial reporting thresholds for charities registered with the Australian Charities and Not‑for‑profits Commission (ACNC). Under the new reporting thresholds, which will be effective from 1 July 2022, the annual revenue threshold for small charities will double to $500,000, and for large charities will triple to $3 million (medium charities being between those two annual revenue amounts). In addition, large registered entities will be required to disclose remuneration paid to responsible persons and senior executives and from 1 July 2023, all charities will be required to disclose related party transactions (ACNC press release).
Use of technology in meetings and signing of documents
Federal Treasury is consulting on proposed legislation to facilitate the use of technology in meetings, to execute company documents and send meeting-related materials. This legislation would effectively make the COVID-19 temporary measures permanent, replacing and expanding the temporary ASIC ‘no-action’ position currently in place. The consultation closes on 16 July 2021.