‘Tell the full story’: ASIC sounds alarm on companies’ financial statements amid heightened scrutiny

The Australian Securities and Investments Commission (ASIC) has warned directors and auditors it will be drilling down into how complete a “story” companies are telling in their narrative disclosures in financial statements this year.

A checklist of items the corporate cop is set to look at in the coming 12 months has been released. Contents of the operating and financial review are among those things to get special treatment.

The release also comes at a time when a heightened level of scrutiny of the conduct of accounting and legal professionals in the PwC tax leaks scandal continues to dominate national debate.

Other issues to attract the regulator’s close eye are asset values, provisions, assessments of solvency and going concern, balance date and after-year-end events. It will also look at how the new accounting standard for insurers is being implemented.

“Directors should ensure that investors are properly informed on the impact of changing and uncertain economic and market conditions, ‘net zero’ targets and other developments on financial position and future performance,” ASIC commissioner Danielle Press said.

“Impacts on asset values and provisions should be assessed and uncertainties, key assumptions, business strategies and risks disclosed.”

She said companies need to ensure they supply sufficient detail to explain the assumptions that are the basis for estimates in their number crunching.

ASIC’s annual alert to directors and auditors points out it will still be looking at how company disclosures describe the impact of the pandemic on its ability to trade.

“The operating and financial review should complement the financial report and tell the story of how the entity’s businesses are impacted by both COVID-19 and non-COVID-19 factors,” the ASIC statement says.

“The underlying drivers of the results and financial position should be explained, as well as risks, management strategies and future prospects.

“Forward-looking information should have a reasonable basis and the market should be updated through continuous disclosure if circumstances change.”

This article was first published by The Mandarin.