1. Revenue recognition
Revenue should be recognised in accordance with the substance of underlying transactions, including:
- that services have been performed
- that control of goods has passed to the buyer
- where a sale of goods and the provision of related services occur together, revenue is appropriately allocated and recognised
- the effect of proper distinction between financial and other assets.
2. Expense deferral
Expenses should not be deferred unless:
- the definition of an ‘asset’ is met and there is a resource controlled as a result of past events from which future economic benefits are expected to flow to the entity
- it is probable that future economic benefits will arise
- the requirements concerning reliable measurement are met.
3. Asset values
Directors should carefully consider asset values and the appropriateness of underlying assumptions (particularly given current economic conditions), including where assets are held in emerging economies. Disclosure of the key assumptions and sensitivity analysis are also important to users, given the subjective nature of many asset valuations.
Impacts of the carbon tax and minerals resource rent tax (MRRT) on asset impairment should also be considered.
4. Off balance-sheet arrangements
Directors should carefully review the treatment of off balance-sheet arrangements, investments in associates and joint-venture arrangements, particularly where the entity is presumed to control that entity or has the majority interest, has the right to obtain the majority of the benefits of any special-purpose entity’s activities or any assets transferred to another entity. Consideration should also be given to who is exposed to the majority of risks.
5. Going concern
Directors need to be realistic in their assumptions about the entity’s future prospects. Where an entity is assessed to be a going concern but significant uncertainty exists, the financial report must adequately disclose the uncertainty and why the directors consider the entity to be a going concern. Directors should review their entity’s ability to refinance maturing debt and compliance with loan covenants.
6. Non-IFRS financial information disclosures
Directors should review the use of non-IFRS financial information against Regulatory Guide RG 230 Disclosing non-IFRS financial information. This includes:
- giving equal or greater prominence to the corresponding IFRS information
- clearly labelling and explaining the information
- providing reconciliations to the IFRS information.
7. Current vs non-current classifications
ASIC continues to identify cases in which current liabilities have been incorrectly classified as non-current. Directors should ensure that there is a contractual right to defer settlement by 12 or more months and that appropriate systems are in place. They should have regard to loan maturities and lending covenant breaches and ensure that the classification is consistent with their understanding of the business.
8. Estimates and accounting policy judgements
Material disclosures of sources of estimation uncertainty and significant judgements in applying accounting policies are important to users and should be specific to the assets, liabilities, income and expenses of the entity.
9. Financial instruments
A number of entities have failed to disclose the methods and significant assumptions used to value financial assets for which there is no observable market data. This is important information for investors.
10. New accounting standards
Three new accounting standards (AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements and AASB 12 Disclosure of Interests in Other Entities) will apply for the first time to financial reporting periods beginning on or after 1 January 2013.
