media release (19-206MR)

Findings from 31 December 2018 financial reports


ASIC today announced the results from a review of the 31 December 2018 financial reports of 125 entities.

The review covered 85 full year financial reports and 40 half-year reports. The review of half-year reports focused on the application of major new accounting standards on revenue and financial instruments.

Arising from the review, ASIC has made inquiries of 26 entities on 40 matters. The largest number of inquiries continue to relate to impairment of non-financial assets and inappropriate accounting treatments. Directors and auditors should continue to focus on values of assets and accounting policy choices in 30 June 2019 financial reports.

Directors and auditors need to focus on impairment of non-financial assets in financial reports to ensure that the market is properly informed about asset values and the expected future performance implied by those values. We continue to find instances where companies have made unrealistic and unsupportable assumptions about future cash flows. ASIC issued Information Sheet 203 Impairment of non-financial assets: Materials for directors (INFO 203) in June 2015 to assist directors and audit committees in considering whether the value of non-financial assets shown in a company’s financial report continues to be supportable.

Directors and auditors should also focus on the impact of the new accounting standards on revenue and financial instruments, which can materially affect reported financial position and results.

Our risk-based surveillance of the financial reports of public interest entities for reporting periods ended 30 June 2010 to 30 June 2018 has led to material changes to 4% of the financial reports of public interest entities reviewed by ASIC. The main changes related to impairment of assets, revenue recognition and expense deferral.

Inquiries made by ASIC from reviews of 31 December 2018 financial reports related to the following matters:


Number of enquiries

Impairment and other asset values


Revenue recognition


Non-IFRS measures


Tax accounting




Business combinations


Amortisation of intangibles


Other matters




Public announcements of material changes

ASIC publicly announces when a company makes material changes to information previously provided to the market following inquiries by ASIC. In addition to improving the level of market transparency, these announcements are intended to make directors and auditors of other companies more aware of ASIC’s concerns so that they might avoid similar issues.

Since the last release on findings in January this year, ASIC has issued media releases in relation to changes by Yellow Brick Road Holdings Limited, Mustera Property Group Limited, Prime Financial Group Limited, Pro-Pac Packaging Limited, and Pioneer Credit Limited. The total adjustments to profit for the first five of these entities were $185 million.


Inquiries of individual entities will not necessarily lead to material restatements. Matters involving 10 of the entities have been concluded without any changes to their financial reporting.

More information about the findings from ASIC’s recent reviews of the financial reports of listed entities and of unlisted entities with larger numbers of users is provided in the Attachment to this release.

ASIC’s focus areas for 30 June 2019 financial reports highlight the need to focus on the new accounting standards that can materially affect reported assets, liabilities and profits, and can be found in ASIC media release Major financial reporting changes and other focuses (19-143MR).

Attachment to 19-206MR: Findings from 31 December 2018 financial reports

1. Asset values and impairment testing

ASIC continues to identify concerns regarding assessments of the recoverability of the carrying values of assets, including goodwill, exploration and evaluation expenditure, and property, plant and equipment.

Findings include:

(a) Reasonableness of cash flows and assumptions: There continue to be cases where the cash flows and assumptions used by entities in determining recoverable amounts are not reasonable or supportable having regard to matters such as historical cash flows, economic and market conditions, and funding costs.

In particular, we found cases where:

(i) assumptions derived from external sources were not assessed for consistency and relevance; and

(ii) the entity’s forecast cash flows did not appear reasonable and had exceeded actual cash flows for a number of reporting periods.

(b) Determining the carrying amount of cash generating units: There are cases where entities appear to:

(i) have identified cash generating units (CGUs) at too high a level despite cash inflows being largely independent, resulting in cash flows from one asset or part of the business being incorrectly used to support the carrying values of other assets;

(ii) have not included all assets that generate the cash inflows in the carrying amount of a CGU, such as inventories and trade receivables and tax balances; and

(iii) have incorrectly deducted liabilities from the carrying amount of a CGU.

(c) Use of fair value: We still see entities using discounted cash flow techniques to estimate fair value where the calculations are dependent on a large number of management inputs. Where it is not possible to reliably estimate the value that would be received to sell an asset in an orderly transaction between market participants, the entity may need to use the asset’s value in use as its recoverable amount.

(d) Impairment indicators: Some entities are not having sufficient regard to impairment indicators, such as significant adverse changes in market conditions, and reported net assets exceeding market capitalisation.

(e) Disclosures: We still find a number of entities not making necessary disclosure of:

(i) sensitivity analysis where there is limited excess of an asset’s recoverable amount over the carrying amount and where a reasonably possible change in one or more assumptions could lead to impairment;

(ii) key assumptions, including discount rates and growth rates; and

(iii) for fair values, the valuation techniques and inputs used.

These disclosures are important to investors and other users of financial reports given the subjectivity of these calculations/assessments. They enable users to make their own assessments about the carrying values of the entity’s assets and risk of impairment given the estimation uncertainty associated with many asset valuations.

This item includes matters arising from the finalisation of impairment matters identified in our reviews of 30 June 2018 financial reports.

2. Revenue recognition

ASIC has followed up 12 matters concerning the recognition of revenue, particularly contracts that involve multiple performance obligations (e.g. sale of goods and provision of services) where one of more obligation is still to be met. In one instance, it appeared that the tax effect of a change in revenue recognition had not been taken into account.

We also identified instances where revenue was not disaggregated with regard to how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors, as is now required for both full year and half year reports.

3. Tax accounting

ASIC has made enquiries of three entities concerning their accounting for income tax, including the adequacy of tax expense and whether it is probable that future taxable income will be sufficient to enable the recovery of deferred tax assets relating to tax losses.

4. Consolidation accounting

We have made enquiries of two entities on the non-consolidation of other entities, including an entity that holds a significant interest in an investee.

5. New accounting standards

We observed that some entities could have provided a better explanation of the impact of adopting new accounting standards on revenue recognition and financial instruments, particularly in half-year financial reports. This includes the nature and cause of any changes.

6. Non-IFRS financial information

We have made enquiries of four entities where the use of non-IFRS financial information may have the potential to be misleading due to the prominence of the information compared to the equivalent statutory measure or lack of clarity on how the non-IFRS information was determined.

7. Operating and financial review

There were some cases where it appeared that companies could have provided better analysis of the underlying drivers of results and explanation of the impact of relevant business risks on future strategies and prospects.

8. Estimates and accounting policy judgements

We observed instances where entities needed to improve the quality and completeness of disclosures in relation to estimation uncertainties, and significant judgments in applying accounting policies. The disclosure requirements are principle-based and should include all information necessary for investors and others to understand the judgements made and their effect. This may include key assumptions, reasons for judgements, alternative treatments, and appropriate quantification.

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