CORPORATE ADVISOR SUMMER EDITION 2018 · HALL CHADWICK NSW • HALL CHADWICK VIC • HALL CHADWICK LD 2 Corporate Advisor Hall Chadwick 2018 Lending you a hand In this issue of Corporate

183 “Make reports useful”, says

ASIC

4 What ASIC’s latest review has taught us

6 How to make materiality judgements

7 ASIC says prospectuses need to improve

8 New paper helps directors understand financial-reporting obligations

9 New rules on Uncertainty over Income Tax Treatments

11 Banksia Managing Director fined and banned

12 Senior executives sentenced for conspiring to falsify accounts

13 Continuous-disclosure publication released

14 Enhancing whistleblower protections

15 Interim reporting and enhanced auditing standards

16 Accounting standards operative for 31 December

17 Accounting standards reminders

19 Appendix

CORPORATE ADVISOR SUMMER EDITION 2018

WHATS INSIDE:

HALL CHADWICK NSW • HALL CHADWICK VIC • HALL CHADWICK QLD

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Corporate Advisor | © Hall Chadwick 2018

Lending you a handIn this issue of Corporate Advisor, we explain 14 financial-reporting, regulatory, and corporate-governance topics to inform and help CFOs and directors.

We’re focusing mainly on regulatory issues that affect the preparation of 31 December reports – ASIC targets and its latest surveillance results.

There are no significant new accounting standards that require application. However, 1 January marks the application of AASB 15 Revenue from Contracts with Customers for for-profit entities and AASB 9 Financial Instruments and related AASB 7 Financial Instruments amendments. Next January sees AASB 15 and AASB 1058 Income of Not-for-Profit Entities and AASB Leases become operative. Preparers should not under-estimate the complexity of these standards and the challenges they confront us with.

There is also help for preparers to better understand the nebulous concept of materiality through practice statement 2 Making Materiality Judgements.

We are looking at the penalties for those that have breached accounting standards.

Our guest contributors from GAAP Consulting include Andrew Parker, who takes a look at whistleblower developments, and Carmen Ridley, who explains the principles of AASB interpretation 23 Uncertainty over Income Tax Treatments. Colin Parker explains 31 December accounting standard considerations.

The Hall Chadwick team looks forward to working with you on the challenges ahead.

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“Make reports useful”, says ASICContributed by: Graham Webb, Partner at Hall Chadwick, Sydney

The Australian Securities and Investments Commission has called on companies to make financial reports useful and meaningful and to address the impact of major new accounting requirements.

Announcing its focus for the year ending 31 December, ASIC highlighted several key areas.

Commissioner John Price said: ‘As with previous reporting periods, directors and auditors should focus on values of assets and accounting policy choices. ASIC continues to see companies use unrealistic assumptions in testing the value of assets or applying inappropriate approaches in areas such as revenue recognition.

‘New requirements for revenue recognition and financial-instrument valuation apply from the year that starts from 31 December 2017. So far, surprisingly few companies have made disclosures of the impact of these standards. This may indicate that some companies need to give urgent attention to [their effects on] systems, processes and their businesses.’

ASIC has also stressed the importance of the roles of directors and management.

‘Directors are primarily responsible for the quality of the financial report,’ said Mr Price. ‘This includes ensuring that management produces quality financial information. Companies must have appropriate processes and records to support information in the financial report rather than simply relying on the independent auditor.

‘Companies should apply appropriate experience and expertise, particularly in more difficult and complex areas such as accounting estimates (including impairment of non-financial assets), accounting policies (such as revenue recognition) and taxation. Information should be produced on a timely basis and be supported by appropriate analysis and documentation for the independent audit.’

The commission reminded directors of the importance of its information sheet 183 Directors and financial reporting.

ASIC’s broad focus for 31 December 2017 financial reports are listed in the Appendix of this newsletter.


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Matter Number of Inquiries

Impairment and other asset values 20

Revenue recognition 8

Tax accounting 8

Expense deferral 4

Business combinations 3

What ASIC’S latest review has taught usContributed by: Geoff Stephens, Partner at Hall Chadwick, Brisbane

ASIC has queried 54 accounting treatments used by 50 entities following a review of the 30-June reports of 220 listed and other public-interest entities.

As part of the commission’s surveillance program, financial reports are selected randomly or on risk-based criteria to determine compliance with the Corporations Act and accounting standards.

Commissioner John Price said: ‘The largest number of our findings 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 preparing their […] reports.’

The survey led to material changes to 4 per cent of the reports of public-interest entities for reporting periods 30 June 2010 to 31 December 2016. The main changes were to impairment of assets, revenue recognition and expense deferral.

ASIC continues to identify concerns over assessments of the recoverability of the carrying values of assets, including goodwill, exploration and evaluation expenditure, and property, plant and equipment. Many of the commission’s inquiries at 30 June relate to assets in the energy and extractive industries.

ASIC reminded directors and audit committees of the importance of information sheet 203 Impairment of non-financial assets: Materials for directors in considering whether the value of non-financial assets shown in a company’s financial report continues to be supportable.

The following summarises ASIC’s review.

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Consolidation accounting 2

Operating segments 2

Other matters 7

Total 54

Inquiries of individual entities did not necessarily lead to material restatements; matters involving 18 entities were concluded without changes to their financial reporting.


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How to make materiality judgementsContributed by: Sandeep Kumar, Partner at Hall Chadwick, Sydney

Directors, trustees and others responsible for the preparation of financial statements make continuous judgements about materiality.

The International Accounting Standards Board has issued practice statement 2 Making Materiality Judgements, which aims to guide companies preparing general-purpose financial statements based on international standards.

The publication encourages companies to apply judgement instead of IFRS requirements so that statements focus on the information most useful to investors.

The concept of materiality is important in preparing statements because it helps entities to determine what to put in and leave out. Entities make materiality judgements not only over information disclosure and presentation but also when making decisions about recognition and measurement.

Some entities that are unsure about their materiality judgements use IFRS disclosure requirements as a checklist.

The practice statement gathers IFRS materiality requirements and adds practical guidance and examples that companies might find helpful. The advice is not mandatory and neither changes requirements nor introduces new ones.

Hans Hoogervorst, chairman of the IASB, said: ‘The practice statement provides companies with the tools to make their financial statements more useful and concise. For change to happen, however, companies, auditors and regulators will have to work together.’

The new statement is part of the IFRS board’s disclosure initiative that, in turn, forms a key part of its work in improving financial reporting.

The AASB version includes examples that are specific to not-for-profit private and public-sector entities.

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ASIC says prospectuses need to improveContributed by: Drew Townsend, Partner at Hall Chadwick, Sydney

While prospectuses are important for people considering investing in initial public offerings, ASIC reports that their practicality and credibility need to improve.

Report 540 Investors in initial public offerings contains ASIC’s analysis of findings from interviews conducted with institutional investors as well as qualitative research that it commissioned.

The report explains how ASIC will use the findings to enhance its regulation of initial offerings. It also explains how companies, their advisers and other market participants can help investors.

In the 2016 calendar year:

• 133 companies listed on the Australian Securities Exchange, raising a total of $6 billion

• 115 companies listed on the HKEX, raising $25 billion

• 66 companies listed on the London Stock Exchange, raising $4 billion, and

• 37 companies listed on the New York Stock Exchange, raising $13 billion.

Many retail investors said prospectuses were hard to read and could not be relied on to tell the whole truth about an IPO.

ASIC aims to buttress confidence in Australian capital markets by regulating IPOs. ASIC commissioner John Price said: ‘The project’s findings allow us to have an understanding of the […] factors and types of information that investors rely on when investing in IPOs, and will allow us to enhance our regulation of [them].

‘We believe that ASIC’s regulation of IPOs is sound. [The commission] will continue to review a significant proportion of prospectuses, given their importance to investors and to maintaining the reputation of Australia’s capital markets.

‘The qualitative research reinforces that prospectuses can be challenging documents for retail investors and particular areas of our guidance on prospectus disclosure should be carefully considered by issuers and their advisers to produce more effective [disclosures].’

In 2016, ASIC ordered 134 corrective disclosures, making 56 interim-stop orders and five final-stop orders. Most orders were against IPOs. ASIC proposes to:

• Engage with stakeholders to encourage greater accessibility to management for investors

• Increase its reviewing of online investor forums and social media

• Broaden its regular media monitoring to include investment magazines and online subscription services, and

• Provide retail investors with extra information about the IPO process.

The report complements others such as Sell-side research and corporate advisory: Confidential information and conflicts, Due diligence practices in initial public offering and Marketing practices in initial public offering of securities.


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New paper helps directors understand financial- reporting obligations Contributed by: David Lissauer, Director at Hall Chadwick, Melbourne

A new guidance paper on financial reporting aims to help directors understand more about financial reporting and better meet their obligations.

Directors Responsibilities for Financial Reporting: What You Need to Know is a joint publication of Chartered Accountants Australia and New Zealand (CA ANZ) and the Association of Chartered Certified Accountants (ACCA).

CA ANZ’s general manager for policy Liz Stamford said it was an important tool for directors working across the Asia-Pacific region and in Europe.

‘Directors [first] and foremost […] have a duty of care and must give clear information about financial statements to investors and others,’ Ms Stamford said.

‘This paper is an easy to follow guide which helps answer a range of questions, including, who is responsible for reporting? What are those responsibilities? And when and how do you discharge those responsibilities?’

The paper outlines what duty of care means in practice, what’s needed in terms of keeping records, and various responsibilities associated with preparing financial statements.

The guide is structured around five key questions:

• Who is responsible for financial reporting?

• Why are directors responsible for financial reporting?

• What are directors responsible for in relation to financial reporting?

• How do directors discharge their financial-reporting responsibilities? and

• When do directors discharge their financial-reporting responsibilities?

The explanations are written in plain English, with additional tips on areas of common confusion such as ‘solvency versus going concern’. The end result is a user-friendly guide that encourages directors to be engaged and seek explanations to support accounting treatments chosen. It also aims to give directors the confidence to challenge accounting decisions applied.

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New rules on Uncertainty over Income Tax TreatmentsContributed by: Carmen Ridley, team leader - corporate reporting, GAAP Consulting, and AASB member

It might be unclear as to how tax law applies to a particular transaction or circumstance. The acceptability of a particular tax treatment under law might not be known until a taxation authority or a court makes a decision some time later.

An authority’s dispute or examination of a particular tax treatment may affect an entity’s accounting for a current or deferred tax asset or liability. AASB interpretation 23 Uncertainty over Income Tax Treatments addresses these circumstances with far-reaching implications that will significantly affect many entities.

Interpretation 23 incorporates interpretation 23 Uncertainty over Income Tax Treatments of the international financial-reporting interpretations committee and issued by IASB.

It clarifies how to apply the recognition and measurement requirements in AASB 112 Incomes Taxes when there is uncertainty over income-tax treatments.

When unsure, an entity must recognise and measure its current or deferred tax asset or liability, applying the requirements in AASB 112 based on taxable profit (or loss), tax bases, unused tax losses, unused tax credits and tax rates determined in applying interpretation 23.

An ‘uncertain tax treatment’ is a tax treatment for which there is uncertainty over whether the relevant taxation authority will accept the treatment under law.

Interpretation 23 specifies that an entity must:

• Identify uncertain tax treatment(s)

• Determine whether treatments should be assessed separately or together based on an approach that better predicts the resolution of the uncertainty

• Assume that a taxation authority will examine amounts it has a right to examine and have full knowledge of all related information when making those examinations

• Conclude whether it is probable or not that the taxation authority will accept an uncertain tax treatment

• When it is not probable, the effect of uncertainty must be reflected in determining the related taxable profit (or loss), tax bases, unused tax losses, unused tax credits or tax rates by either the most likely amount or the expected value. The choice of method depends on which method the entity expects to predict better the resolution of the uncertainty

• Reassess a judgement or estimate if the facts and circumstances change or as a result of new information that affects the judgement or estimate, and

• Apply the interpretation’s transitional provisions.

Interpretation 23 applies for annual reporting periods beginning on or after 1 January 2019.


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Implications include:

• Directors will have to assess continually the aggressiveness of tax positions taken

• The probability threshold for deferred tax liabilities will be applied at an earlier point and could result in more tax liabilities being recognised

• Entities will need to consider the tax office’s public guidance as to what it is likely to dispute and its success in disputed matters in determining the likely resolution

• Listed companies will also need to ensure that they appropriately disclose uncertain and disputed tax positions under their continuous-disclosure obligations, and

• Consideration of ‘issued but not yet operative accounting standards and interpretations’ as well as the disclosures of accounting estimates and judgements, and contingencies.

‘Breaking ranks and reporting wrongdoing can be a harrowing experience, so it is important people know that they will have access to redress if they are victimised as a result of blowing the whistle.’

The new protection applies to whistleblower disclosures received from 1 July. The disclosures can be about misconduct before that date.

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Banksia Managing Director fined and bannedContributed by: Geoff Stephens, Partner at Hall Chadwick, Brisbane

The Federal Court has ordered Patrick John Godfrey, former managing director of Banksia Securities Limited (in liquidation, receivers and managers appointed) to pay a pecuniary penalty of $25,000 and be disqualified from managing corporations for five years.

The court was satisfied with an agreed statement of facts between ASIC and Mr Godfrey, and declared that Mr Godfrey had contravened section 344(1) of the Corporations Act in that:

• Banksia’s financial reports for the financial years ending 30 June 2011 and 30 June 2012, and its half-year financial report for 31 December 2011 did not comply with relevant accounting standards, nor did they give a true and fair view of Banksia’s financial position and performance given the amount disclosed for the provision of bad and doubtful debts was inadequate

• Mr Godfrey failed to have or obtain a sufficient understanding of the requirements of the relevant accounting standard, AASB 139 Financial Instruments: Recognition and Measurement, for the recognition and assessment of the impairment of mortgage investments made by Banksia

• Mr Godfrey’s recommendations as to the appropriate amount of provision for bad and doubtful debts resulted in Banksia’s financial reports failing to give a true and fair view of the company’s financial position, and

• Mr Godfrey failed to take all reasonable steps to secure compliance by Banksia with AASB 139.

Justice Moshinsky found that the penalty and disqualification order ASIC and Mr Godfrey had jointly submitted were appropriate.

ASIC commissioner John Price said: ‘The importance of ensuring that the financial accounts of a company are reported in accordance with the law by complying with the correct accounting standards is essential to provide assurance and market confidence. Mr Godfrey fell short of the standards required of him in this case.’

Banksia was a Kyabram-based unlisted public company involved in raising money from the public by issuing debentures and lending the funds raised to borrowers for property investment and development purposes. As at October 2012, Banksia had raised about $663 million from 15,622 investors.

On 11 June 2014, ASIC accepted an enforceable undertaking from Warren John Sinnott, Banksia’s former auditor, under which he is prevented from practising as a registered auditor until 10 June 2019.


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Senior executives sentenced for conspiring to falsify accounts Contributed by: David Lissauer, Director at Hall Chadwick, Melbourne

Glyn Leonard Raines, former CFO of Hastie Services Pty Limited (in external administration), has been sentenced to two years’ jail to be served as an intensive corrections order after ASIC brought charges.

Mr Raines pleaded guilty to two charges of conspiracy to falsify Hastie’s books and records and one charge of conspiracy to give false or misleading information to an auditor.

In sentencing Mr Raines, Judge Whitford said: ‘On any view, the offending is objectively serious. There was no issue concerning that conclusion on sentence. It involved relatively senior managers within the corporate structure of a listed entity conspiring both to falsify the company books and to mislead and deceive the company auditors.’

‘[Mr Raines] must have been acutely conscious of the impropriety of his conduct and, even if they were not intended, the serious consequences to which conduct that character could reasonably rise, both for the company directly and more broadly for its parent, the parent’s company’s shareholders and the market generally.’

Judge Whitford took into account Mr Raines’s ‘significant degree of contrition’ and ‘considerable and extensive co-operation’ with ASIC’s investigation.

This decision follows the sentencing on 24 August of co-conspirator Samantha Kate Cousins, a former finance manager of Hastie Services. Ms Cousins had earlier pleaded guilty to two charges of conspiracy to falsify Hastie’s books and records and one charge of conspiracy to give false or misleading information to an auditor.

She was released on immediate recognisance on condition of good behaviour for two years and a security of $1000.

ASIC commissioner John Price said: ‘The accuracy and reliability of financial reports is crucial to ensuring all who read [them] are properly informed. ASIC will ensure that company officers who deliberately act to falsify books and records, in an attempt to mislead the public, will be brought to account.’

Both Ms Cousins and Mr Raines admitted that:

• Between 7 November 2008 and about 30 June 2011, they conspired with two other senior staff members of Hastie Services to make false entries into the books of the company to reduce the ‘gap’ between forecast earnings before interest and tax and the actual sum

• Between 5 May 2010 and about 13 February 2011, they conspired with the same two senior staff members to make false entries into the books to conceal the true financial position of the company’s Western Australian branch, and

• Between 17 June 2010 and about 9 April 2011, they conspired with the same two senior staff members to provide false information to Hastie Group Limited auditors to conceal the offending.

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Continuous-disclosure publication releasedContributed by: Drew Townsend, Partner at Hall Chadwick, Sydney

The Governance Institute of Australia has released Continuous Disclosure: listed and other disclosing entities, an invaluable guide to continuous-disclosure essentials and how to apply them.

Listed entities have been obliged to disclose information to the market for many years. Continuous disclosure is a cornerstone of Australia’s system of fair, open and efficient capital markets. It is essential to ensuring that markets are fully and equally informed.

There are also obligations that apply to certain non-listed entities, and it’s important to know how and when these apply.

The regime has been amended many times in recent years. Increasingly high standards of disclosure are demanded by the Corporations Act 2001, particularly according to their interpretations in several court cases.

While the compliance requirements are by definition very serious, they need not hamstring an entity’s operations. This publication is essential reading for companies’ officers, directors, senior executives and auditors.

They are, after all, the people whose knowledge, actions and decisions are vitally important to ensuring compliance.


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Enhancing whistleblower protectionsContributed by: Andrew Parker, team member GAAP Consulting, and CEO ReportFraud

The federal government has introduced Treasury Laws Amendment (Whistleblowers) Bill 2017, signalling stronger protections for whistleblowers who expose corporate and tax misconduct.

The bill creates a single whistleblower protection arrangement in the Corporations Act 2001 to cover corporate, financial and credit sectors, and creates a new whistleblower-protection amendment to tax law to protect those who expose tax misconduct.

Reforms to the Corporations Act include:

• Expanding protection to a broader class of people

• Expanding the types of disclosures that will be protected under the framework

• Allowing disclosures to parliamentarians and the media in certain circumstances, if preconditions are satisfied

• Imposing new stringent obligations to maintain the confidentiality of a whistleblower’s identity

• Making it significantly easier for a whistleblower to bring a claim for compensation where he or she has been victimised

• Creating a new civil penalty offence so that law enforcement agencies will be able to take action against companies where the civil standard of proof can be met, and

• Requiring all large companies to have a whistleblower policy in place, penalties applying for failing to do so.

Minister for revenue and financial services Kelly O’Dwyer said the bill was a significant milestone because it created a single, enhanced whistleblower-protection scheme to cover corporate and financial sectors.

‘The bill also features a new whistleblower-protection regime in the taxation law to protect those who expose tax misconduct,’ Ms O’Dwyer said.

‘The reforms mean whistleblowers will be able to come forward with the confidence that they will be protected under a comprehensive and robust legal framework.

‘Breaking ranks and reporting wrongdoing can be a harrowing experience, so it is important people know that they will have access to redress if they are victimised as a result of blowing the whistle.’

The new protection applies to whistleblower disclosures received from 1 July. The disclosures can be about misconduct before that date.

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Interim reporting and enhanced standardsContributed by: Graham Webb, Partner at Hall Chadwick, Sydney

The Auditing and Assurance Standards Board has issued Auditor review reports – the impact of the new auditor reporting requirements, which describes how new reporting requirements might affect the review-report format for engagements in accordance with ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity.

The following issues are dealt with:

• Are auditors’ review reports affected by the new requirements? ASRE 2410 has not been amended for them. Reports on reviews conducted in accordance with ASRE 2410 must continue to comply with the requirements of the existing standard

• Can auditors use the new format for review reports? Yes, but there is no requirement to do so. Any amendments to the format must accord with ASRE 2410

• Does the auditor’s review report need to include key audit matters? No. ASA 701 and ASRE 2410, however, do not preclude the inclusion of KAMs in auditors’ review reports, and

• Does a review report need to include an ‘other information’ section? No. Other information is needed for reports under ASA 720.


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Accounting standards operative for 31 DecemberContributed by: Sandeep Kumar, Partner at Hall Chadwick, Sydney

There are only minor to accounting standards for 31 December year-end.

AASB 2016-2 Disclosure Initiative – Amendment to AASB 107: The amendment to AASB 107 Statement of cash flows introduces additional disclosures that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment requires disclosure of changes arising from: cash flows, such as drawdowns and repayments of borrowings, and non-cash changes, such as acquisitions, disposals and unrealised exchange differences.

AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses [AASB 112]: The amendments to AASB 112 Incomes Taxes clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset’s tax base.

AASB 2017-2 Amendments to Australian Accounting Standards – Further Annual Improvements 2014 – 2016 Cycle: These amendments clarify the scope of AASB 112 Incomes Taxes by specifying that the disclosure requirements apply to an entity’s interests in other entities that are classified as held for sale, held for distribution to owners in their capacity as owners or discontinued operations in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations.

AASB 2016-4 Amendments to Australian Accounting Standards – Recoverable Amount of Non-Cash Generating Specialised Assets of Not-for-Profit Entities. This Standard amends AASB 136 Impairment of Assets to: remove references to depreciated replacement cost as a measure of value in use for not-for-profit entities; and clarify that the recoverable amount of primarily non-cash-generating assets of not-for-profit entities, which are typically specialised in nature and held for continuing use of their service capacity, is expected to be materially the same as fair value determined under AASB 13 Fair Value Measurement.

Consequently, AASB 136 does not apply to such assets that are regularly revalued to fair value under the revaluation model in AASB 116 Property, Plant and Equipment and AASB 138 Intangible Assets; and AASB 136 applies to such assets accounted for under the cost model in AASB 116 and AASB 138.

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Accounting standards remindersContributed by: Colin Parker, Principal, GAAP Consulting and former AASB member

The following standards are operative from 31 December:

• AASB 2016-1 Amendments to Australian Accounting Standards – Recognition of Deferred Tax Assets for Unrealised Losses

• AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107

• AASB 2016-4 Amendments to Australian Accounting Standards – Recoverable Amount of Non-Cash-Generating Specialised Assets of Not-for-Profit Entities

• AASB 2016-7 Amendments to Australian Accounting Standards – Deferral of AASB 15 for Not-for-Profit Entities

• AASB 2017-2 Amendments to Australian Accounting Standards – Further Annual Improvements 2014-2016 Cycle, and

• AASB 1048 Interpretation of Standards.

The following standards become operative from 1 January and apply to 31 December year-ends for the first time:

• AASB 9 Financial Instruments

• AASB 15 Revenue from Contracts with Customers

• AASB 2016-3 Amendments to Australian Accounting Standards – Clarifications to AASB 15

• AASB 2016-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions

• AASB 2016-6 Amendments to Australian Accounting Standards – Applying AASB 9 Financial Instruments with AASB 4 Insurance Contracts

• AASB 2017-1 Amendments to Australian Accounting Standards – Transfers of Investment Property, Annual Improvements 2014-2016 Cycle and Other Amendments (for-profit entities)

• AASB 2017-5 Amendments to Australian Accounting Standards – Effective Date of Amendments to AASB 10 and AASB 128 and Editorial Corrections

The following accounting standards and interpretation become operative from 1 January next year:

• AASB 16 Leases

• AASB 1058 Income of Not-for-Profit Entities

• AASB 2016-8 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for-Profit Entities

• AASB 2017-1 Amendments to Australian Accounting Standards – Transfers of Investment Property, Annual Improvements 2014-2016 Cycle and Other Amendments

• AASB 2017-6 Amendments to Australian Accounting Standards – Prepayment Features with Negative Compensation

• AASB 2017-7 Amendments to Australian Accounting Standards – Long-term Interests in Associates and Joint Ventures

• IFRIC 23 Uncertainty over Income Tax Treatments


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Becoming operative in 2021 is:

• AASB 17 Insurance Contracts

The International Accounting Standards Board has issued Annual Improvements to IFRS Standards 2015–2017 Cycle, which makes narrow-scope amendments to four IFRS Standards.

Amendments during the 2015–2017 cycle are to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes, and IAS 23 Borrowing Costs. They are effective from 1 January 2019, early application permitted. The AASB has yet to issue the amendments in an Australian context.

While by number this list is impressive, most are narrow technical amendments which will not affect most entities, so don’t list them in the note on Accounting Standards Issued but not yet Operative as they are likely to be immaterial.

ASIC has repeatedly reminded preparers, boards and auditors of the importance of timely disclosures concerning new standards AASB 15 Revenue from Customer Contracts, AASB 9 Financial Instruments and AASB 16 Leases. See the appendix ASIC’s broad focus for 31 December 2017 financial reports for its latest warning.

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Appendix: ASIC’s broad focus for 31 December 2017 financial reports

Focus Area ASIC Comments

New accounting standards

Directors and management ensure that entities are prepared for these new standards and inform investors and other financial report users of the impact on reported results.

There can be real business impacts and a need to implement new systems and processes.

There is also a requirement to disclose the impact of the standards in notes to current financial reports ahead of the operative dates for the new standards.

This may mean quantification of the impacts for the reporting date that coincides with the start of the first comparative period that will be affected in a future financial report. Subject to transitional arrangements, that would mean 31 December 2016 for new standards on revenue and financial instrument valuation, and 31 December 2017 for the new lease standard. For the revenue and financial instrument standards 31 December 2016 marks the commencement of the new standards ‘going live.’

Further information can be found in ASIC media release Companies need to respond to major new accounting standards (refer MR 16-442).

Operating and financial review – listed entities

They should continue to disclose information on risks and other matters that may have a material impact on the future financial position or performance of the entity. This could include, for example, matters relating to digital disruption, new technologies, climate change, Brexit or cyber-security.

For more information see ASIC regulator guide 247 Effective disclosure in an operating and financial review.

Directors may also consider whether it would be worthwhile to disclose additional information that would be relevant under integrated reporting or sustainability reporting where that information is not already required for the operating and financial review (OFR).

Enhanced audit reports – listed

Preparers and directors should be mindful that key audit matters may relate to accounting estimates and significant accounting policy choices that also require specific disclosures in financial reports, as well as matters relating to the business that should be covered in the OFR.

Auditors should describe key audit matters and their work in those areas in a clear and understandable manner, having regard to the broad audience of investors and other users of financial reports. The description of key audit matters and the work performed should be specific to the circumstances of the company and the audit.


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Material disclosures

ASIC’s surveillance continues to focus on material disclosures of information useful to investors and others using financial reports, such as assumptions supporting accounting estimates and significant accounting policy choices.

ASIC will not pursue immaterial disclosures that may add unnecessary clutter to financial reports; efforts should be made to communicate information more clearly in financial reports.

Client monies

Australian financial services licensees should ensure that client monies are appropriately held in separate, designated trust bank accounts, and that monies are applied in accordance with client instructions and the requirements of the Corporations Act.

Auditors are reminded of the importance of audit testing to obtain assurance that assets and liabilities are not materially misstated, that monies are dealt with appropriately and that breaches are reported to ASIC in accordance with the act and regulatory guide 34 Auditors’ obligations: Reporting to ASIC.

Proprietary companies

ASIC continues to review the financial reports of proprietary companies and unlisted public companies, based on complaints and other intelligence.

ASIC also recently wrote to more than 1000 proprietary companies that appeared to be large with no reporting exemption and had not lodged financial reports.

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CORPORATE ADVISOR SUMMER EDITION 2018 · HALL CHADWICK NSW • HALL CHADWICK VIC • HALL CHADWICK LD 2 Corporate Advisor Hall Chadwick 2018 Lending you a hand In this issue of Corporate

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