The Australian Securities and Investments Commission (ASIC) has highlighted a number of areas on which company Boards and those responsible for the preparation of financial reports should focus in the upcoming reporting period.

These issues are informed by ASIC’s recent review of the full-year, and 31 December 2008 half-year, financial reports of over 100 listed entities.

ASIC also announced that its upcoming review will cover the 30 June 2009 financial reports of about 350 listed entities and unlisted entities with large numbers of users.

ASIC’s reviews have identified use of boilerplate disclosures, and disclosures that didn’t properly convey the risks associated with an entity’s instruments and how those risks are managed. The extent of use of instruments was sometimes unclear. In addition, market risk disclosures and sensitivity analysis were sometimes net of the effect of hedging arrangements and there was no information on notional underlying amounts of derivatives. Hedging arrangements were sometimes poorly disclosed. Disclosures of security for borrowings and debt maturity profiles, which are particularly important given reduced liquidity and debt refinancing opportunities, were sometimes omitted.

Other matters
Further focus areas for those responsible for preparing the financial reports are:

• disclosure of specific information for significant accounting policies having most effect on the financial report, including measurement, and sources of estimation uncertainty;
• current/non-current classification of assets and liabilities, with particular regard to agreements and lending covenants;
• classifying instruments as debt or equity, having regard to their substance;
• revenue recognition, particularly where services are still to be rendered, including contracts with multiple deliverables;
• expense deferral, particularly whether definition and recognition criteria for assets are met, including requirements under the intangible assets standard;
• related party transaction disclosures; and
• treatment and disclosure of events after balance date, including asset value changes.

The full announcement is available from ASIC.