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Thursday 17 December 2020

20-329MR ASIC review of 30 June 2020 financial reports

ASIC today announced the results from its review of the financial reports of 170 listed entities (and other public interest entities with larger numbers of users of their reports) for the year ended 30 June 2020. The review was conducted as part of ASIC’s ongoing risk-based reviews of financial reports.

ASIC has made inquiries of 27 entities on 58 matters. The largest numbers of matters relate to impairment of non-financial assets, asset values and disclosure in the operating and financial review.

Asset values and disclosures under COVID-19 conditions

Many companies made useful and meaningful disclosures on the impact of COVID-19 conditions.  However, some entities with businesses adversely affected by the pandemic did not appear to give sufficient attention to the reporting of asset values and financial position.

We recognise COVID-19 conditions may create uncertainties which necessitate the use of probability weighted scenarios. Disclosure of assumptions is key in this context. We continue to make inquiries where companies have made unrealistic and unsupportable assumptions about future cash flows, and where disclosures did not clearly identify the impacts of COVID-19 conditions on the business.

Our findings emphasise that directors and auditors need to focus on impairment of non-financial assets given the extended impact of the COVID-19 pandemic, to ensure that the market is properly informed about asset values and the expected future performance implied by those values.

For information on focus areas for 31 December 2020 financial reports, refer to 20-325MR ASIC highlights focus areas for 31 December 2020 financial reports under COVID-19 conditions.

ASIC’s inquiries

Following the 30 June 2020 review, ASIC made inquiries about the following matters:


Number of inquiries

Impairment and other asset values


Operating and Financial Review


Revenue recognition


Tax accounting




Non-IFRS profit measures


Operating segments


Classification of debt


Other matters




Making inquiries of individual entities will not necessarily lead to material restatements in every case. Matters involving four of the entities have been concluded without any changes to their financial reporting. Inquiries of the remaining 23 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 31 December 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 last release of ASIC findings on 31 July 2020, we have made public announcements about:

The total negative adjustments to profit for these entities was $60 million.

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

ASIC review of 30 June 2020 financial reports 

1. Asset values and impairment testing

ASIC’s inquiries on assessments of the recoverability of the carrying values of assets, including goodwill and property, plant and equipment 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, or uncertainties due to COVID-19 conditions.

In particular, ASIC found a case where the entity’s forecast cash flows did not appear reasonable and had exceeded actual cash flow for a number of reporting periods.

(b) Determining the carrying amount of cash generating units: We have made inquiries to understand how entities have identified cash generating units (CGUs), given indications they may be at too high a level despite cash inflows being largely independent.

(c) Treatment of leases by lessees: whether entities that are lessees and impacted by the new lease accounting requirements have adjusted their impairment models to include all right of use assets in the carrying amounts of assets tested for impairment and appropriately adjusted the cash inflows and discount rate used in determining recoverable amount.

(d) Estimates of fair value: ASIC has made inquiries of two entities that use discounted cash flow techniques to estimate fair value where the calculations are dependent on a large number of management inputs.

(d) Disclosures: ASIC still finds a number of entities not making necessary disclosure of:

  1. 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;
  2. key assumptions, including discount rates, growth rates, and how uncertainties were addressed; and
  3. for fair values, the valuation techniques and inputs used.

These disclosures are important to investors and other users of financial reports given the potential uncertainties and differing assumptions under COVID-19 conditions. These disclosures 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 31 December 2019 financial reports.

2. Operating and Financial Review (OFR)

ASIC has raised several inquiries about the quality of an entity’s OFR, and the extent to which it complemented the financial report and told the story of how the entity’s business is impacted by the COVID-19 pandemic.  

There were several entities that did not present their OFRs as set out in RG 247 Effective disclosure in an operating and financial review. We observed some instances where:

  1. no information was provided on the entity’s business model, including key features;
  2. information was not provided on business strategies and prospects. While the impact of the COVID-19 pandemic presents challenges in providing information about prospects, some entities did not explain why this was not disclosed.
  3. some entities relied on the `unreasonable prejudice’ exemption from making disclosure of strategies and future prospects where this did not appear justified while their competitors in the same industry did not; and
  4. there was no discussion of risks that could affect the entity’s future performance, including sustainability and climate risks where relevant.

These observations aim to refocus listed entities and their directors on the important principles within RG 247 for the upcoming reporting season.

3. Revenue recognition

ASIC has followed up seven matters concerning revenue recognition. In one matter, we are inquiring into the entity’s franchise fee arrangements, which in some instances have been varied as a result of COVID-19 factors. In another matter, we have made inquiries about an entity’s commission-based revenue, which relies on estimates about future sales, which has also been impacted by COVID-19.

ASIC has also made inquiries with an entity about its change in accounting policy for revenue from the previous year. The entity did not disclose any information about the reasons for the change.

4. Tax accounting

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

5. Provisions

ASIC has inquired with four entities on the adequacy of provisions, including possible onerous lease contracts and site rehabilitation. We have also made inquiries of a company regarding possible obligations for casual employees.

6. Non-IFRS measures

ASIC has followed up four entities about their use of non-IFRS profit measures, and the prominence of these over statutory information. In one instance, the entity has presented a split of profit or loss between pre-COVID-19 and post-COVID-19 and prominence has been given to the pre-COVID-19 period in the directors’ report.

7. Operating segments

ASIC has made enquiries of three entities in relation to the disclosure of operating segments. In one instance, the entity has identified significant items of expense which have not been allocated to a reportable segment.