Improving financial reporting

Improve financial reporting
Podcast: Improving financial reporting

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ASIC supplies some helpful suggestions for quality reporting.

By Doug Niven

ASIC recently announced its focus for 30 June 2014 financial reports of listed and public interest entities, as well as findings from its reviews of 31 December 2013 reports.

Quality financial reporting is an important contributor to confident and informed markets. Financial reports should provide useful and meaningful information for users of those reports.  Preparers and auditors should particularly focus on accounting policy choices and accounting estimates.

Listen to a podcast with ASIC's Doug Niven 

ASIC’s surveillances led to material changes to 4 per cent of the financial reports reviewed for periods ended 30 June 2010 to 30 June 2013.  From July 1 2014, ASIC will publicly announce when, following contact from ASIC, a company makes material changes to information previously provided to the market. Directors of other companies will be more aware of ASIC’s concerns and hopefully can avoid similar issues.


A number of entities have made significant impairment write-downs as a result of ASIC inquiries. Some companies continue to use unrealistic cash flows and assumptions. In some cases there have been material mismatches between cash flows used and assets tested. Fair value less costs to sell should use discounted cash flows if forecasts and assumptions are not reliable.

Intangibles amortisation
Intangibles must be amortised over the period of contractual or legal rights. Renewal periods should not be included unless there is a renewal right, renewal is expected to occur and renewal costs are not significant. Time based intangibles should be amortised even if they have not yet generated revenue.  Assertions that assets have an indefinite life should be tested.

New standards
New standards on consolidation, joint arrangements, interests in other entities and fair value measurement can significantly change the accounting for some entities.


Revenue should be recognised when services have been performed and control of goods has passed, having regard to the substance of arrangements.

Expense deferral

Expenses should only be deferred when the definition of ‘asset’ is met, it is probable that future economic benefits will arise, and requirements of the intangibles standard are met.


There should be a proper understanding of both the tax and accounting treatments, and how differences between the two affect tax assets, liabilities and expenses. Recent changes in tax legislation should be considered, and the recoverability of any deferred tax assets.

Disclosures of sources of estimation uncertainty and significant accounting policy judgements should be made and should be specific.
Key assumptions and a sensitivity analysis for asset valuations are important to users, including disclosing where a reasonably foreseeable change in assumptions could lead to impairment.

Listed entities should also disclose segment information that may be important to investors.

Proprietary companies

Findings from 30 June 2013 financial reports of proprietary companies included using special purpose financial reports that omitted significant disclosures, even though there were substantial operations.


Directors should challenge accounting estimates and treatments, seek explanations and seek appropriate professional advice. Directors should review cash flows and assumptions used in asset valuations.

Entities should have a culture and incentives focused on quality reporting, and effective governance, processes and controls.  Directors should have appropriate financial literacy, and ensure appropriate experience and expertise is applied to financial reporting.

See ASIC Information Sheet 183, Directors and financial reporting. Regard should also be given to ASIC Information Sheet 196, Audit quality: the role of directors and audit committees.

For further information see ASIC media releases 14-120 and 14-141 at

Doug Niven is Senior Executive Leader, Financial Reporting and Audit, at the Australian Securities and Investments Commission.

March 2015
March 2015

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