Responding to regulatory focus areas

The Australian Securities and Investments Commission (ASIC) recently issued its focus areas for financial reporting under COVID-19 conditions. These are complemented by ASIC’s frequently asked questions (FAQs).

In June 2021, ASIC announced that it had reviewed 85 listed entities financial reports as part of its surveillance program for 31 December 2020, which focussed on entities and industries adversely affected by current conditions.

Impairment of non-financial assets, including goodwill and intangible assets, has historically received strong focus from ASIC. We anticipate that this will continue. For 31 December 2020 reports, ASIC made inquiries of 15 entities on 22 matters, of which 10 matters related to impairment and other asset values.

The impact of COVID-19 on local and global economies, combined with the uncertainties it creates, introduces significant challenges in preparing financial reports. It is important to provide clear disclosures of the impacts on the entity, the uncertainties the entity faces, and the significant judgements and estimates made in compiling the financial report. Appropriate documentation of these assumptions can assist in protecting both management and directors.

Key updates to areas of focus relative to prior years include:

• The impacts of changes in circumstances from prior reporting periods under COVID-19 conditions on asset values, provisions, going concern and on disclosures of key assumptions, risks, strategies, and future prospects
• Implementation of the new guidance relating to the adoption of the IFRIC® Interpretation on Software-as-a-Service (SaaS) arrangements    
• An expectation of climate risk disclosures by listed entities in the Operating and Financial Review (OFR).

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