N1 Holdings Limited (N1H) has restated its 2022 revenue in its financial report for the half year ended 31 December 2022, following ASIC’s review of N1H’s financial report for the year ended 30 June 2022.

As part of its financial reporting surveillance program, ASIC raised concerns about N1H’s treatment of loan establishment fees and the appropriateness of its accounting policy under accounting standards. As a result, N1H’s 2022 profit has reduced from $1.1 million to $697,000.

N1H is primarily a non-bank lender that has recently experienced growth in its lending business. It earns interest and fees from lending to small and medium enterprises or self-employed borrowers. At the commencement of a loan, a borrower is charged a loan establishment fee.

ASIC was concerned that N1H was recognising the total loan establishment fee upfront instead of treating it as part of the loan’s effective interest rate, as is required by AASB 9 Financial Instruments (AASB 9).

ASIC reminds preparers of financial information that AASB 9 requires loan origination fees to be treated as part of the loan’s effective interest rate. The effective interest method results in revenue that is recognised over the period of the loan, which can impact materially on reported profits.

ASIC also raised concerns about the quality of N1H’s business risks disclosure in its operating and financial review. Separately, N1H has provided improved disclosure of business risks as part of an announcement to the ASX on 23 December 2022.

Background

ASIC’s financial reporting surveillance program aims to improve the quality of financial reporting and to ensure financial reports have been prepared in accordance with the law, supporting investor confidence and the integrity of Australia’s capital markets.

ASIC conducts regular reviews on a risk-basis of the financial reports of selected listed companies and other significant public interest entities to monitor compliance with the Corporations Act 2001 and accounting standards.

AASB 9 sets out the requirements for calculating the amortised cost of a financial asset and the recognition of loan origination fees and interest.

AASB 15 Revenue from contracts with customers does not apply to fees associated with lending products that are in the scope of AASB 9.

ASIC Regulatory Guide 247 Effective disclosure in an operating and financial review provides guidance for directors of listed entities on providing useful and meaningful information to investors in the operating and financial review.