Clarity in financial reporting – January 2022 monthly newsletter

Responding to ASIC areas of focus

Key actions : Entities must consider and respond to ASIC focus areas in the current financial reporting season.

Update

As noted in our December 2021 email, ASIC released its focus areas for December 2021 financial reporting. These are complemented by ASIC’s frequently asked questions (FAQs). ASIC subsequently announced the results of its review of 150 listed entity financial reports for 30 June 2021.

In summary:

• For 30 June 2021 reports, ASIC made inquiries of 29 entities on 53 matters, of which 14 matters (26%) related to impairment of non-financial assets, including goodwill and intangible assets, and expected credit losses on loans and receivables
• In addition, revenue recognition, recoverability of deferred tax assets, expense deferral, recognition of make-good provisions and classification of debt as current or non-current also continue to be areas of inquiry
• The review also focused on disclosures of material business risks. As a result ASIC has urged directors to place greater focus on disclosure of material business risks in the in the Operating and Financial Review (OFR)
• The impact of COVID-19, combined with the uncertainties around recovery, introduces significant challenges in preparing financial reports. It is important to provide clear disclosures of the impacts on the entity, the uncertainties the entity faces and the significant judgements and estimates made in compiling the financial report

Changes from previous periods
Key updates to the areas of focus from prior periods include the:

• Calculation of the net realisable value (NRV) of inventory and inclusion of all estimated costs necessary to make the sale
• Contingent payments to selling shareholders in a business combination and whether they are remuneration for service
• Accounting treatment of put options the entity has written over the non-controlling interest in a subsidiary
• Disclosure of the impacts of changes in circumstances from prior reporting periods on financial statement line items
• Disclosure of climate risks by listed entities in the OFR
• The accounting for bed licences by aged care providers following announcements that these licences will be discontinued.

Practical guide to responding to ASIC’s concerns

We have produced an edition of our Clarity publication Responding to ASIC areas of focus.

In addition to detailed discussion of the ASIC focus areas and outcomes of ASIC financial report reviews, the publication discusses various matters for entities to consider in responding to those areas, and explores related financial reporting themes

.Access the publication here.

Resources for financial reporting

Key actions: Our useful resources for the current reporting season.

Set out below is a brief summary of key resources relevant for financial reporting at 31 December 2021:

Financial reporting guide and models

• Australian financial reporting guide (10th Edition)
• Tier 1 models and reporting considerations
• Model half-year financial report
• Model special purpose financial statements (Corporations Act 2001)
• Model special purpose financial statements (non-regulatory reporting requirement).

Clarity publications

• Responding to ASIC areas of focus
• Revised deadlines for unlisted entities at December 2021
• Software-as-a-Service arrangements
• Disaggregated revenue disclosures
• A diagnosis for your impairment assessment
• Disclosure of climate-related risks
• Non-IFRS measures – enhancements or embellishments?

• December 2021 Clarity email - Financial reporting considerations of inflation, supply chain disruptions and labour shortages
• IFRS in Focus – Closing out 2021
• IFRS in Focus – Accounting considerations related to the Coronavirus 2019 disease
• IFRS in Focus – COVID-19 and financial reporting under IFRS Standards
• IFRS in Focus – Expected credit loss accounting considerations related to Coronavirus disease 2019.

Resources for Simplified Disclosures

• Tier 2 Simplified Disclosures model financial statements (illustrating early adoption)

.Other resources

• November 2021 client financial reporting update podcasts
• COVID-19 implications for financial reporting and audit: Frequently asked questions (FAQs) (ASIC)
• AASB Coronavirus (COVID-19) guidance (AASB).

Two minute update

Why does it matter? Ensure you are aware of the latest developments.
A summary of recent developments:

New IFRIC® agenda decision on windfarms

The IASB® has confirmed an IFRS Interpretations Committee agenda decision on the economic benefits from use of a windfarm. The Committee received a request about whether, applying paragraph B9(a) of IFRS 16 Leases, an electricity retailer has the right to obtain substantially all the economic benefits from use of a windfarm throughout the term of an agreement with a windfarm generator (supplier).

In the agenda decision, the Committee concluded that, in the fact pattern described in the request, the retailer does not have the right to obtain substantially all the economic benefits from use of the windfarm. Consequently, the agreement does not contain a lease.

AASB issues amendments to Simplified Disclosures and other Standards for accounting policy disclosures

The AASB has issued AASB 2021-6 Amendments to Australian Accounting Standards – Disclosure of Accounting Policies: Tier 2 and Other Australian Accounting Standards, which amends the following standards:

• AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities, to require entities to disclose their material accounting policy information rather than their significant accounting policies and to clarify that information about measurement bases for financial instruments is expected to be material to an entity's financial statements
• AASB 1054 Australian Additional Disclosures, to reflect the updated accounting policy terminology used in AASB 101 Presentation of Financial Statements
• AASB 1049 Whole of Government and General Government Sector Financial Reporting, to require entities to disclose their material accounting policy information rather than their significant accounting policies.

The amendments are applicable to annual reporting periods beginning on or after 1 January 2023. This application date is consistent with equivalent amendments made to AASB 101 and other standards by AASB 2021-2 Amendments to Australian Accounting Standards – Disclosure of Accounting Policies and Definition of Accounting Estimates.

Entities preparing for transition to AASB 1060 at 30 June 2022 may wish to consider early adoption of the amendments to reduce unnecessary disclosures in their financial report, whilst providing more meaningful accounting policy information to users of the report

AASB extends application date of sale or contribution of assets amendments to AASB 10 and AASB 128

The AASB has issued AASB 2021-7 Amendments to Australian Accounting Standards – Effective Date of Amendments to AASB 10 and AASB 128 and Editorial Corrections. The amendments extend the application date of the original amendments made to AASB 10 Consolidated Financial Statements and AASB 128 Investments in Associates and Joint Ventures dealing with sale or contribution of assets between an investor and associates or joint ventures to annual reporting periods beginning on or after 1 January 2025 (from 1 January 2022).

The Standard also makes a number of editorial amendments which are mostly applicable to annual reporting periods beginning on or after 1 January 2022.

AASB/AUASB staff paper on sustainability-related information

A joint staff article from the staff of the AASB and AUASB provides an overview of the Australian perspective on recent global sustainability-related developments and the considerations for what approach the AASB and AUASB may take in response to those developments.

Treasury consultation on CCIV rules and regulations

Treasury has released for comment draft regulations and rules that would implement key elements of the corporate collective investment vehicle (CCIV) regulatory framework. The draft regulations and rules would support the operation of the Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021 which would create a new form of 'tax pass through' entity with new tax and financial reporting requirements. The proposals include various financial reporting aspects of the proposed regime. Comments on the proposals close on 21 January 2022.

Reporting deadlines for unlisted entities at December 2021

Why does it matter? Entities need to ensure they comply with reporting deadlines in the upcoming reporting season and be aware that deferral arrangements at December 2021 are different to previous periods.

As noted in our December email, the Australian Securities and Investments Commission (ASIC) announced on 30 November 2021 that it would extend reporting deadlines for December 2021 unlisted entity financial reports.

Subsequently, ASIC made ASIC Corporations (Amendment) Instrument 2021/976 to give effect to the announcement.

The one month extension is available for unlisted entities with reporting dates from 24 December 2021 to 7 January 2022 (both inclusive).

We’re published an edition of our Clarity publication Revised deadlines for unlisted entities at December 2021, which provides more information about the one month deferral and summarises the deadlines applicable for unlisted entities at December 2021.

Access the publication here.
Published : January 2022