media release (20-173MR)

ASIC review of 31 December 2019 financial reports


ASIC today announced the results from its review of the financial reports for the year ended 31 December 2019 of 90 listed entities and other public interest entities with larger number of users of their reports. The review was conducted as part of ASIC’s ongoing risk-based reviews of the financial reports.

ASIC has made inquiries of 21 entities about 40 matters. The largest numbers of matters relate to revenue recognition and impairment of non-financial assets.

Asset values

Directors and auditors need to focus on impairment of non-financial assets in financial reports to ensure the market is properly informed about asset values and expected future performance implied by those values. We continue to find instances where companies have made unrealistic and unsupportable assumptions about future cash flows.

Asset values and related disclosures are important areas for the focus of directors, preparers and auditors for financial reports at 30 June 2020, particularly given the impact on businesses of the COVID-19 pandemic. For information on focus areas for 30 June 2020 financial reports, refer to 20-157MR Focuses for financial reporting under COVID-19 conditions.

ASIC’s inquiries

Following the 31 December 2019 review, ASIC made inquiries about the following matters:


Number of inquiries

Revenue recognition 10
Impairment and other asset values 9
Tax accounting 4
Provisions 4
Financial instruments 4
Consolidation and equity accounting 4
Business combinations 1
Leases 1
Other matters 3
Total 40

Making inquiries of individual entities will not necessarily lead to material restatements in every case. Matters involving eight of the entities have been concluded without any changes to their financial reporting. Inquiries of the remaining 13 entities are continuing.

Material changes

ASIC’s risk-based surveillance of the financial reports of public interest entities for reporting periods ended 30 June 2010 to 30 June 2019 has led to material changes to about 5 per cent of the reviewed financial reports. The main changes were to impairment of assets, revenue recognition and expense deferral.

When a company makes material changes to information previously provided to the market following inquiries made by ASIC, ASIC makes a public announcement. In addition to improving the level of market transparency, these announcements are intended to make directors and auditors of other companies aware of ASIC’s concerns so they can avoid similar issues.

Since the release of ASIC findings on 7 February 2020, we have made public announcements about:

The total negative adjustments to profit for these entities was more than $80 million.

More information about the findings from ASIC’s recent reviews is provided in the attachment to this media release.


Attachment: ASIC review of 31 December 2019 financial reports

1. Revenue recognition

ASIC has followed up 10 matters concerning the recognition of revenue, particularly contracts that involve multiple performance obligations (e.g. sale of goods and provision of services) where one or more obligation is still to be met.

ASIC also identified instances where the accounting policy for revenue recognition needed to be more clearly described.

2. Asset values and impairment testing

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

Findings include:

  • Reasonableness of cash flows and assumptions: There continue to be cases where the cash flows and assumptions used by entities to determine recoverable amounts are not reasonable or supportable in light of historical cash flows, economic and market conditions, and funding costs.

    In particular:
    • assumptions derived from external sources were not assessed for consistency and relevance, and
    • the entity’s forecast cash flows did not appear reasonable and had exceeded actual cash flow for a number of reporting periods.
  • Determining the carrying amount of cash generating units: Some entities appear to 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
    • 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/or
    • incorrectly deducted liabilities from the carrying amount of a CGU.
  • Use of fair value: ASIC still sees 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.
  • Impairment indicators: Some entities are not paying sufficient attention to impairment indicators, including significant adverse changes in market conditions, and reported net assets exceeding market capitalisation.
  • Disclosures: ASIC continues to find a number of entities not making necessary disclosure of:
    • sources of estimation uncertainty
    • key assumptions, including discount rates and growth rates
    • sensitivity analysis
    • instances where a reasonably foreseeable change in one or more assumptions could lead to impairment, and/or
    • for fair values, the valuation techniques and inputs used.

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

The disclosures will be particularly important for 30 June 2020 reports because of the wider range of asset value judgements caused by the uncertainties of the COVID-19 pandemic (refer: 20-157MR).

The findings listed above on asset values and impairment include findings arising from the finalisation of matters identified in our reviews of 30 June 2019 financial reports.

3. Tax accounting

ASIC asked four entities about 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. Provisions

ASIC inquired of four entities about the adequacy of provisions for rehabilitation, warranty claims and employee benefits.

5. Financial instruments

ASIC questioned four entities about the treatment of certain financial instruments, including the fair valuation of equity instruments and an arrangement where a fair value gain arose from the forgiveness of debt.

6. Consolidation and equity accounting

ASIC approached four entities about the non-consolidation of other entities or not equity accounting an interest in other entities where there were indicators of possible significant influence.

7. New lease accounting standard

Some entities could have provided a clearer explanation of the impact of adopting the new accounting standard on leases. This includes the nature and cause of any changes.

In one instance, ASIC made inquiries about a sale and leaseback of property.

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