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Clarity in financial reporting – November 2023 monthly newsletter

Australian climate-related reporting requirements exposed for comment, ASIC surveillance reviews outcomes, December models and more

Our monthly Clarity in financial reporting newsletter informs you of key focus areas in financial reporting for the month: actions, developments, and dates.

Australian climate-related reporting requirements exposed for comment

Understand the AASB’s proposed requirements for Australian climate-related financial disclosures to be mandatorily applied from 1 July 2024

On 23 October 2023, the Australian Accounting Standards Board (AASB) released Exposure Draft ED SR1 Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information (Climate ED).

In summary:

  • The Climate ED contains three proposed Australian Sustainability Reporting Standards (ASRSs); ASRS 1 General Requirements for Disclosure of Climate-related Financial Information, ASRS 2 Climate-related Financial Disclosures and ASRS 101 References in Australian Sustainability Reporting Standards
  • The proposed ASRSs are based on the International Sustainability Standards Board’s (ISSB) IFRS S1 and IFRS S2 with Australian amendments to focus on climate first, apply an Australian contextual lens, meet Federal Government policy and make the standards sector neutral
  • The AASB is proposing the standards would apply to financial reporting periods commencing 1 July 2024. Scoping and timing will however be determined by the Federal Government
  • The Climate ED is open for feedback and comment until 1 March 2024.

We’ve released an edition of our Clarity publication, Australia’s first climate standards: no more waiting. This publication analyses the Climate ED and discusses:

  • What’s happening – a summary of the three proposed Australian Sustainability Reporting Standards (ASRSs)
  • Australian focused standards – providing the key themes that are evident in the Climate ED and the background to key changes from the ISSB standards
  • Commonwealth Treasury proposals – explores the insights provided in the Climate ED about possible developments in the Federal Government’s policy development on climate-related financial disclosures
  • Comparison to global standards – a summary of the key changes from the ISSB’s standards that are important for Australian constituents to understand
  • Next steps – the AASB’s request for feedback and what to do now.

More information:

Client financial reporting update reminder

As noted in our last newsletter, you are invited to attend our Client financial reporting update sessions being held around the country and virtually during November and December 2023. Hear about the transition to mandatory climate and sustainability reporting in Australia and globally, and understand the key focus areas for the next reporting cycle.

It’s not too late to register! View dates and register here

ASIC publishes its results of its new integrated financial reporting and audit surveillance approach

Understand and respond to ASIC’s new integrated approach to financial reporting and audit surveillance

ASIC has released a report outlining the outcomes of its financial reporting and audit surveillance for the year ending 30 June 2023.

What is the background to the report?

The report, Annual financial reporting and audit surveillance report 2022-23, is the first delivered under a new approach to surveillance adopted by ASIC in the past 12 months. ASIC now releases a single report covering financial reporting and auditing matters in respect of each 12 month period, whereas before ASIC would release media releases in respect of financial reporting surveillance programs for each of the June and December reporting periods. Additionally, ASIC would release an annual inspection report over its audit surveillance.

The new approach reflects changes in the way in which ASIC undertakes its surveillance – reflecting a data-led risk-based approach that integrates financial reporting and audit surveillance.

The new approach uses market data, reported financial information, ASX announcements, ASIC intelligence, section 311 notices lodged by auditors, external party misconduct reports and specific industry considerations. In addition, ASIC has focused audit surveillance where entities changed their financial reporting in response to ASIC’s financial reporting surveillance.

The new approach is consistent with previous ASIC’s announcements and the ASIC Corporate Plan 2023-27 – Focus 2023-24, which notes a focus on data and natural language processing in financial reporting and audit surveillance.

For the first time, the report also provides more information about the industries subject to surveillance, and ASIC’s considerations on how it develops its focus areas.

What were the outcomes of ASIC’s surveillance?

The report notes that ASIC reviewed 180 financial reports – 156 listed entities and 24 large unlisted entities considered to be ‘of public interest’ – covering years ended from 31 March 2022 to 28 February 2023. ASIC contacted 55 entities and raised 93 issues, resulting in:

  • 25 findings covering 29 issues where ASIC raised a media release because the company subsequently amended its financial report or financial information. This resulted in a review of 15 audit files
  • 58 issues closed without further action
  • 6 remaining open surveillances.

The issues raised covered the following topics:

ASIC also undertook a targeted surveillance of entity’s disclosure of the expected impacts of AASB 17 Insurance Contracts, reviewing disclosures made by 14 insurers.  ASIC noted that six insurers did not disclose any estimate of financial impact of AASB 17.

In terms of audit surveillance, ASIC’s 15 surveillances led to findings being reported to 11 entities and nine audit firms.  Four audit surveillances were closed with no findings.  The findings covered impairment of non-financial assets and asset values, revenue and receivables, inventory and costs of goods sold, provisions and investments and financial instruments.  Other audit findings included supervision and review of component auditor work, compliance with laws and regulations and regulatory compliance covenant testing, and the non-evaluation of an entity’s departure from accounting standards.

ASIC’s key messages to directors and preparers

The report notes that directors (including audit committees) and preparers need to support the audit process by ensuring:

  • Disclosures in the operating and financial review (OFR) reflects the entity’s individual circumstances
  • Management produces robust position papers to support quality and timely financial information – and these should be prepared for directors and audit committees, particularly for areas with significant estimation uncertainty and judgement
  • Adequate resources, skills and expertise are in place
  • Effective and clear communication with the auditor
  • A robust auditor selection process is in place.

More information:

  • ASIC Media Release 23-278MR ASIC releases first integrated financial reporting and audit surveillance report for 12 months ending 30 June 2023
  • ASIC Report REP 774 Annual financial reporting and audit surveillance report 2022-23.
December 2023 models and checklists now available

Use our models and checklists to enhance your corporate reporting for the December 2023 reporting season

The following editions of the models and checklists are available on our model financial statements page:

  • December 2023 Tier 1 models and reporting considerations publication - in addition to global and Australian-specific illustrative disclosures, this document contains our popular 'what's new in financial reporting' analysis, which provides a summary of key considerations for the December 2023 reporting season.  This document is a ‘one-stop shop’ for December reporting by Tier 1 entities and provides an up-to-date summary of key developments in financial reporting, sustainability reporting, regulatory actions and key focus areas
  • December 2023 model half-year report - Our model half-year report illustrates the disclosures required under AASB 134 Interim Financial Reporting and provides a summary of key matters of focus for half-year reporting at December 2023
  • December 2023 Tier 1 financial reporting checklist. A guide to required accounting, presentation and disclosures under IFRS® Accounting Standards and Australia-specific requirements applicable to Tier 1 entities for annual reporting periods ending on or after 31 December 2023 but before 31 December 2024.  This checklist includes the requirements of AASB 17 Insurance Contracts.

In addition, we have other editions of model financial reports, and our Australian financial reporting guide, available on our model financial statements page.

Quick updates

Treasury consults on its sustainable finance strategy

Treasury has released a consultation paper on its proposed sustainable finance strategy.  The consultation paper discusses a series of proposed priorities designed to support the Government’s emission reductions targets, respond to market sustainability information needs and align Australia’s capital markets with emerging international standards.

From a corporate reporting perspective, the paper notes:

  • Continuing toward the implementation of mandatory climate-related financial disclosures on a phased in basis from 1 July 2024, acknowledging a need for capacity building in areas such as scope 3 emissions reporting, and indicating an expansion to government sector entitiesT
  • ransition planning disclosures to be initially based on IFRS S2 Climate-related Disclosures, with a possible enhancement in the medium term
  • Continued market supervision and enforcement by ASIC over sustainable finance, including greenwashing and accurate and substantiated sustainability claims
  • A commitment to increasing focus on sustainability issues beyond climate change, including nature and biodiversity, including ASIC considering guidance on voluntary nature-based disclosures until global baseline standards can be developed
  • The development of an Australian sustainability finance taxonomy with possible disclosure of alignment with the taxonomy in the medium term.
  • The consultation paper is open for comment until 1 December 2023.

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