Mr Jeffrey Lucy, Chairman of the Australian Securities and Investments Commission (ASIC), today released the findings of ASIC’s review of financial report disclosures explaining progress by listed entities towards the adoption of the Australian equivalents to International Financial Reporting Standards (AIFRS).

AIFRSs apply for financial reporting periods beginning on or after 1 January 2005.

ASIC reviewed the narrative note disclosures made in the published financial reports of more than 1100 listed entities with 30 June 2004 balance dates.

The review found that while the nature and extent of the disclosures varied, 99 per cent of the entities provided disclosure under AASB 1047 ‘Disclosing the Impacts of Adopting Australian equivalents to International Financial Reporting Standards’.

‘The high level of compliance with the standard indicates that it has achieved the objectives of having directors and management focus on this issue as well as provide users of the financial report with information about the expected impact of the new accounting standards’, Mr Lucy said.

‘It is a positive outcome as our review shows that listed companies have a good level of awareness of the need to manage the transition to AIFRS.’

‘Based on these disclosures it is reasonable to assume that most listed entities expect to be able to manage the transition. Only one entity included a general statement that adoption of AIFRSs will be a significant challenge for Australian companies.’

‘We are pleased that the transition does not seem as problematic as some were predicting’, he said.

The review found that:

• 95 per cent of the listed entities reviewed disclosed the key differences in accounting policies that arise from the transition or positively stated that they didn’t expected any major differences;
• in areas selected by ASIC from those where key differences in accounting policy are likely to exist, most entities disclosed these common key differences were relevant to them. These differences included: use of discounted rather than undiscounted cashflows for asset impairment testing; expensing amounts relating to share-based payments; accounting for corporate sponsored defined benefit superannuation plans and reversing past revaluations or capitalised expenses in relation to certain intangible assets; and
• almost 10 per cent of entities voluntarily quantified the financial effect of some or all key differences in accounting policy that they had identified and disclosed. Quantification is not required until the 30 June 2005 year-end financial reports.

ASIC has written to the 11 entities that failed to make the necessary disclosure, requiring them to disclose the required information to the Australian Stock Exchange immediately.

While the overall result was positive, ASIC notes that in some areas disclosures could have been more comprehensive, including that:

• many entities could have described the management of their specific transition processes in more detail;
• many entities could have provided more detail as to the impact of the key differences in accounting policy, eg. that the expected change would lead to an expense, asset etc;
• recognising that the transition process involves managing more than just accounting policy impacts, more disclosure on any real business impacts could be given such as on taxation, lending covenants, profit incentive arrangements, future dividend policy, Australian financial service licence financial requirements, prudential capital requirements etc; and
• many entities didn’t describe the impact on their parent entity financial statements.

June year-end entities will be required to make updated AASB 1047 disclosures in their December half-year reports. ASIC expects more detail on these issues and on progress toward implementation in those reports.

Background

Australian Accounting Standard AASB 1047, ‘Disclosing the Impacts of Adopting Australian Equivalents to International Financial Reporting Standards’ requires entities to explain how the transition to the IFRS is being managed and a narrative explanation of the key differences in accounting policies that are expected to arise from adoption of AIFRS.