Firms should “tell the story” of how their businesses are impacted by the Covid-19 pandemic, including support and assistance received from government, lenders, landlords and others.
ASIC (Australian Securities and Investments Commission) has published new guidance for listed entities on its key focus areas for 30 June 2020 financial reporting.
“In the current environment, the quality of financial reports and related disclosures is more important than ever for investors and to maintain confident and informed markets,” said ASIC Chair James Shipton.
Given the adverse impacts on many entities from the Covid-19 pandemic, directors, preparers and auditors should focus on the factors affecting asset values, provisions, and solvency and going concern assessments, ASIC says.
With respect to asset values, firms should reassess impairment of non-financial assets such as goodwill and intangible assets, values of property assets in light of changes to work arrangements and consumer preferences, and expected credit losses on loans and receivables considering the financial circumstances of borrowers and debtors.
Events that occur after year-end by before the completion of the financial report should also be reviewed, to assess whether they affect assets, liabilities, income or expenses, or relate to new conditions requiring disclosure. “For example, information on receipts after year-end might provide more information on the recoverability of loans or receivables at year-end.”
Disclosures in the financial report should also include uncertainties, key assumptions and sensitivities, to assist investors in understanding the approaches taken by firms and the potential future impacts, while also enabling comparisons between entities.
“The OFR [Operating and Financial Review] should complement the financial report and tell the story of how the entity’s businesses are impacted by the Covid-19 pandemic,” ASIC says. “This should be supported by information that will enable investors to understand the significant factors affecting the entity, its businesses and the value of its assets.”
Significant factors not attributable to the Covid-19 pandemic should also be included and “given appropriate prominence”.
Entities should also appropriately account for each type of support and assistance from government, lenders, landlords and others – including disclosure of significant amounts, commencement dates and the expected duration of any support or assistance received.
ASIC will review the full-year financial reports of about 200 larger listed entities and other public interest entities as at 30 June 2020, focusing on entities and industries affected by the current conditions.