ASIC has released the results of its reviews of financial reports for the year ended 30 June 2011 and announced its areas of focus for 31 December 2011 financial reports.

Issues identified in ASIC’s reviews included:

• there are indicators of possible asset impairments, such as reported net assets being significantly higher than the entity’s market capitalisation.
• use of unrealistically optimistic discount and growth rates; failure to disclose carrying amounts allocated to each cash generating unit and the basis for determining recoverable amounts; lack of disclosure of assumptions used in discounted cash flow calculations, particularly growth rates and discount rates; and no sensitivity analysis for changes in key assumptions.
• there continue to be instances where companies have failed to make adequate disclosures relating to the ability to continue as a going concern.
• entities that have not consolidated entities in which they hold an ownership interest of over 50%.
• cases where current liabilities have been incorrectly classified as non-current and adjustments have been required.

In the next reporting season, ASIC will focus particularly on:

• asset values and going concern assessments, including adequate disclosure of material assumptions;
• consolidation decisions and off balance sheet arrangements; and
• proper disclosure of segment information in a manner that enables useful assessment of the separate businesses.