ASIC has today released findings from its first integrated financial reporting and audit surveillance program.
As a result of ASIC’s surveillance, adjustments totalling $215 million were made to previously released financial information by ASX-listed companies and other large entities.
Report 774 Annual financial reporting and audit surveillance report 2022–23 outlines findings related to insufficient disclosure of material business risks in the operating and financial review, impairment of assets and revenue recognition and other financial report disclosures. ASIC reviewed 180 financial reports of ASX-listed entities and other large unlisted entities, as well as 15 related audit files from 1 July 2022 to 30 June 2023.
ASIC’s surveillances have found that preparers and auditors of financial reports need to focus on accounting for non-financial assets, asset values, revenue recognition and disclosure of material business risks.
ASIC has provided the audit findings to the directors of 11 companies to encourage constructive discussions between the companies and their auditors to improve the quality of the financial report and audit.
ASIC Executive Director for Regulation and Supervision, Greg Yanco, said he expected preparers, approvers and auditors of financial reports to focus on the areas of concern identified by ASIC.
‘Under our integrated financial reporting and audit surveillance program, ASIC targets financial reports for review using risk-based criteria. These include where we have identified potential issues in revenue recognition or asset valuation,’ said Mr Yanco.
‘From this pool of reports, we then select audit files to review where we see the potential for a report to be materially incorrect.’
‘This approach acknowledges that everyone in the financial reporting chain, from report preparers to directors to auditors, have a role to play in improving the quality of financial reports and audits.’
‘ASIC will publicly report on the issues we find in financial reports and audit files in order to promote high-quality financial reporting and continuous improvement in audit quality. Where we see significant deficiencies in financial reports and audit files, we will refer those companies and auditors to ASIC's enforcement team,’ Mr Yanco said.
ASIC also expects all audit firms to focus on audit quality. They must identify and address the root cause of audit findings and develop and implement action plans to foster an effective and sustainable audit quality system. ASIC will continue to review aspects of the quality management systems of the larger audit firms.
Report 774 Annual financial reporting and audit surveillance report 2022–23
ASIC’s financial reporting and audit surveillance program focusses on financial reports and audits of listed entities, significant public interest entities or other unlisted entities of interest.
Audit surveillances of audit files cover firms that audit the financial reports of listed entities and other public interest entities.
The financial reports and audit files in ASIC’s surveillance program were selected from over 29,000 entities that are required to lodge financial reports with ASIC, including over 1,900 ASX-listed entities and 27,000 unlisted entities. Of the 3,200 registered company auditors and authorised audit firms in Australia, more than 150 registered company auditors and 50 authorised audit companies audit one or more listed entities.
For more information and guidance, refer:
- Regulatory Guide 260 Communicating findings from audit files to directors, audit committees or senior managers
- Information Sheet 196 Audit quality – The role of directors and audit committees
- Information Sheet 222 Improving and maintaining audit quality
- Information Sheet 223 Audit quality – The role of others
- Information Sheet 224 ASIC audit surveillances (updates to INFO 224 reflecting ASIC’s integrated approach to financial reporting and audit surveillance will be available shortly)