Financial reporting under COVID-19 conditions

Australian Securities and Investment Commission (ASIC) has provided further information on focus areas for financial reporting in the COVID-19 environment for year ending 30 June 2020.

“In the current environment, the quality of financial reports and related disclosures is more important than ever for investors and to maintain confident and informed markets,” said ASIC Chair James Shipton.

“Entities with businesses adversely affected by the COVID-19 pandemic should focus on the reporting of asset values and financial position. Investors will expect clear disclosure about the impacts on an entity’s businesses, any risks and uncertainties, key assumptions, management strategies and future prospects.

The regulator has also published a list of frequently asked questions on the ASIC website.

Given the adverse impacts on many entities from the COVID-19 pandemic, ASIC’s directive is that directors, preparers and auditors should focus on:

  • asset values
  • provisions
  • solvency and going concern assessments
  • events occurring after year end and before completing the financial report
  • disclosures in the financial report and Operating and Financial Review (OFR).

ASIC has made it clear that useful and meaningful disclosures about the business impacts and potential uncertainties will be vital. Uncertainties may lead to a wider range of valid judgements on asset values and other estimates. Disclosures in the financial report about uncertainties, key assumptions and sensitivity analysis will be important to investors.

The OFR should complement the financial report and tell the story of how the entity’s businesses are impacted by the COVID-19 pandemic. The underlying drivers of the results and financial position should be explained, as well as risks, management strategies and future prospects.

ASIC has indicated that appropriate experience and expertise should be applied in the reporting and audit processes, particularly in more difficult and complex areas, such as asset values and other estimates.

Directors and auditors should be given sufficient time to consider reporting issues and to challenge assumptions, estimates and assessments.

Directors should make appropriate enquiries of management to ensure that key processes and internal controls have operated effectively during periods of remote work. Auditors may need to amend their procedures for remote work (for example, virtual stock counts and system walk-throughs) and where there are changes in the design or effective operation of internal controls.

ASIC has extended the deadline for both listed and unlisted entities to lodge financial reports under Chapters 2M and 7 of the Corporations Act by one month for certain balance dates up to and including 7 July 2020 balance dates.

Where possible, entities should continue to lodge within the normal statutory deadlines having regard to the information needs of shareholders, creditors and other users of their financial reports, or to meet borrowing covenants or other obligations.