Ahead of 30 June 2023 reporting for full and half-years, the Australian Securities and Investments Commission (ASIC) has urged directors and auditors to assess the impact of uncertain market and economic conditions.
ASIC commissioner Danielle Press said: “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.
“Impacts on asset values and provisions should be assessed, and uncertainties, key assumptions, business strategies and risks disclosed.”
In particular, the corporate watchdog highlighted asset values, provisions, solvency and going concern assessments, events occurring after year end and before completing the financial report, disclosures in the financial report and operating and financial review (OFR), and the impact of a new accounting standard for insurers.
“Assumptions underlying estimates and assessments for financial reporting purposes should be reasonable and supportable,” said Ms Press.
ASIC added that directors and management should assess how the current and future performance of an entity, the value of its assets and provisions, and business strategies, may be affected by changing circumstances, uncertainties, and risks, pointing to everything from skills availability and regulatory changes to geopolitical risks and technological innovations.
It isn’t just their own business that directors need to be mindful of, with ASIC warning that it is important to ensure an entity’s borrowers, debtors, and lessees can meet their obligations, as well as the ability of key suppliers to continue to provide goods and services.
The construction industry, owners of commercial property, large carbon emitters, and the agriculture industry are among the industries most likely to be affected by these factors.
“Uncertainties may lead to a wider range of valid judgements on asset values and other estimates. These uncertainties may change from period to period. Disclosures in the financial report about uncertainties, key assumptions and sensitivity analysis are important to investors,” ASIC said.
ASIC added that the OFR 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 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,” the regulator said.