ob体育

ob体育 today announced the results from a review of the 31 December 2015 financial reports of 100 listed and other public interest entities.

Following our review, ob体育 has made enquiries of 18 entities on 24 matters seeking explanations of accounting treatments.

ob体育 Commissioner John Price said: 鈥楾he 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 30 June 2016 financial reports.鈥�

ob体育 issued Information Sheet 203 Impairment of non-financial assets: Materials for directors in June 2015 to assist directors and audit committees in considering whether the value of non-financial assets shown in a company鈥檚 financial report continues to be supportable.

Our risk-based surveillance of the financial reports of public interest entities for reporting periods ended 30 June 2010 to 30 June 2015 has led to material changes to 4% of the financial reports of public interest entities reviewed by ob体育. The main changes over this period related to impairment of assets, revenue recognition and expense deferral.

Enquiries made by ob体育 from reviews of the 31 December 2015 financial reports relate to the following matters:

Enquiries of individual entities will not necessarily lead to material restatements.聽Matters involving four of the entities have been concluded without any changes to their financial reporting.

In keeping with its overall goal of reducing unnecessary redtape and regulatory intervention, ob体育 does not pursue immaterial disclosures that it considers may add unnecessary clutter to financial reports.

Public announcements of material changes

From 1 July 2014, ob体育 has publicly announced when a company makes material changes to information previously provided to the market following enquiries by ob体育.聽In addition to improving the level of market transparency, these announcements are intended to make directors and auditors of other companies more aware of ob体育鈥檚 concerns so that they can avoid similar issues.

In the period since our last surveillance results were released in December 2015, ob体育 has issued media releases in relation to changes by Slater & Gordon, Panoramic Resources Limited, Ashley Services Group Limited, Spring FG Limited, and Cardno Limited. The total adjustments to profit for these entities were $1.2 billion.

Further information

More information about the findings from ob体育鈥檚 recent reviews of the financial reports of listed entities and of unlisted entities with larger numbers of users is provided in the attachment to this release.

ob体育鈥檚 focus areas for 30 June 2016 financial reports can be found in ob体育 media release 16-174 ob体育 calls on directors to apply realism and clarity to financial reports.

Attachment to 16-205MR: Findings from 31 December 2015 financial reports

1.聽Asset values and impairment testing

ob体育 continues to identify concerns regarding assessments of the recoverability of the carrying values of assets, including goodwill, exploration and evaluation expenditure, and property, plant and equipment. The largest number of ob体育鈥檚 enquiries at 31 December 2015 relate to assets in the extractive industries.

Findings include:

1. Determining the carrying amount of cash generating units: There are cases where entities:
   1. appear to have identified cash generating units (CGUs) at too high a level despite cash inflows being largely independent, resulting in cash flows from one asset or part of the business being incorrectly used to support the carrying values of other assets;
   2. did not include all assets that generate the cash inflows in the carrying amount of a CGU, such as inventories and trade receivables and tax balances;聽and
   3. incorrectly deducted liabilities from the carrying amount of a CGU.
2. Reasonableness of cash flows and assumptions: There continue to be cases where the cash flows and assumptions used by entities in determining recoverable amounts are not reasonable or supportable having regard to matters such as historical cash flows, economic and market conditions, and funding costs. In particular, we found cases where:
   1. assumptions derived from external sources were not assessed for consistency and relevance;
   2. the entity鈥檚 forecast cash flows did not appear reasonable and had exceeded actual cash flows for a number of reporting periods;聽and
   3. corporate costs and assets are not allocated to CGUs on an appropriate basis where it is reasonable to allocate them.
3. Fair value assessments of recoverable amounts: We still see entities using discounted cash flow techniques to estimate fair value where the calculations are dependent on a large number of management inputs. Where reliance is placed solely on management inputs, entities need to consider other fair value methods with a view to 鈥榗ross checking鈥� their estimate. Where it is not possible to reliably estimate the value that would be received to sell an asset in an orderly transaction between market participants, the entity may need to use the asset鈥檚 value in use as its recoverable amount.
4. Value in use assessments using cash flows that aren鈥檛 probable: We have seen extractive industry entities apply the value in use method for impairment testing before technical feasibility and commercial viability have been demonstrated.聽Value in use can only be used where cash flows are probable.
5. Impairment indicators: Some entities are not having sufficient regard to impairment indicators, such as significant adverse changes in market conditions, and reported net assets exceeding market capitalisation.
6. Disclosures: We still find that there a number of entities not making necessary disclosure of:
1. sensitivity analysis where there is limited excess of an asset鈥檚 recoverable amount over the carrying amount and where a reasonably possible change in one or more assumptions could lead to impairment;
2. key assumptions, including discount rates and growth rates;聽 and
3. for fair values, the valuation techniques and inputs used.

These disclosures are important to investors and other users of financial reports given the subjectivity of these calculations/assessments. They enable users to make their own assessments about the carrying values of the entity鈥檚 assets and risk of impairment given the estimation uncertainty associated with many asset valuations.

This item includes matters arising from the finalisation of impairment matters identified in our reviews of 30 June 2015 financial reports.

2.聽Revenue recognition

ob体育 followed up three matters concerning the recognition of revenue, including the recognition of commissions on property development contracts and the timing of bringing the revenue to account.

3.聽Tax accounting

ob体育 is making enquiries of three entities concerning their accounting for income tax, and in particular where it appears that future taxable income may not be sufficient to recover deferred tax assets.

4.聽Estimates and accounting policy judgements

We observed instances where entities needed to improve the quality and completeness of disclosures in relation to estimation uncertainties, and significant judgments in applying accounting policies. The disclosure requirements are principle-based and should include all information necessary for investors and others to understand the judgements made and their effect.聽This may include key assumptions, reasons for judgements, alternative treatments, and appropriate quantification.

These disclosures are important to allow users of the financial report to assess the reported financial position and performance of an entity.

Auditors will be required to disclose information on key audit matters in audit reports from December 2016.聽Directors should ensure that relevant information is already disclosed in the financial report and in the Operating and Financial Review.