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Financial reports should be meaningful

Friday 2 December 2022

Directors are urged to ensure that their annual and half-year reports have meaningful information. 

the Australian Securities and Investments Commission (ASIC ) has highlighted some particular areas of concern:

  • 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).
ASIC Commissioner Sean Hughes said in an official statement, “Companies may continue to face some uncertainties about future economic and market conditions, and the impact on their businesses. Assumptions underlying estimates and assessments for financial reporting purposes should be reasonable and supportable.”

ASIC has also called on AFSL to revisit
RG 247 Effective disclosure in an operating and financial review published in 2019. 

The regulator calls  on directors of the financial services licensees to pay attention to particular areas of uncertainty:

  • the availability of skilled staff and expertise, which can impact revenue and costs;
  • the impact of rising interest rates on future cash flows and on discount rates used in valuing assets and liabilities;
  • inflationary impacts that may differ between costs and income;
  • increases in energy and oil prices;
  • geopolitical risks, including the Ukraine/Russia conflict;
  • impacts of climate change and climate-related events;
  • commitments and policies on climate and carbon emissions by governments;
  • technological changes and innovation;
  • COVID-19 conditions and restrictions during the reporting period;
  • changes in customer preferences and online purchasing trends;
  • use of virtual meetings and more flexible working arrangements;
  • the discontinuation of financial and other support from governments, lenders and lessors, including any possible increases in the level of insolvencies;
  • legislative and regulatory changes; and
  • other economic and market developments.