One of our most read articles is the case note on ASIC v Healey (the Centro case) which decided that each director has a duty of skill, competence and diligence in understanding their company’s financial report and ensuring that the information in the financial report is consistent with their knowledge of the company’s financial position and affairs.

ASIC has recently issued two advisories dealing with company financial reports.

ASIC has announced its focus areas for 30 June 2015 financial reports of listed entities and other entities of public interest with many stakeholders.

ASIC encourages preparers and auditors of financial reports to carefully consider the need to impair goodwill and other assets. ASIC says it continues to find impairment calculations that use unrealistic cash flows and assumptions, as well as material mismatches between the cash flows used and the assets being tested for impairment.

ASIC has also issued information sheet (INFO 203) explains the responsibilities of company director in connection with the testing of non-financial assets for impairment in the financial report of a company.

ASIC has also identified the following issues relating to financial reports:

• accounting policy choices: ASIC encourages preparers and auditors tod focus on the appropriateness of key accounting policy choices that can significantly affect reported results. These include off-balance sheet arrangements, revenue recognition, expensing of costs that should not be included in asset values, and tax accounting.
• 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, significant accounting policy choices, and the impact of new reporting requirements.
• Role of directors: Even though directors do not need to be accounting experts, ASIC has repeated its views that directors should seek explanation and professional advice supporting the accounting treatments chosen if needed and, where appropriate, challenge the accounting estimates and treatments applied in the financial report. They should particularly seek advice where a treatment does not reflect their understanding of the substance of an arrangement. See also Information Sheet 183 Directors and financial reporting (INFO 183).