The ASIC media release on 6 June 2023 outlined its key areas of focus for this reporting season, stressing the need for directors, preparers of financial reports and auditors to evaluate the potential impact of shifting circumstances, uncertainties, and risks.

Key areas of focus

Asset values

Considerations for directors, preparers, and auditors regarding asset values include:

• impairment of non-financial assets
• appropriate valuation methods
• factors affecting property values
• expected credit losses
• asset classification
• inventory valuation
• deferred tax assets
• investments in unlisted entities.

Provisions

Financial statement preparers need to provide sufficiently for potential expenses or obligations relating to onerous or loss-making contracts, property leases, restoring mining or other sites, providing financial guarantees, and making changes to your business.

Solvency and going concern assessments

In a growing interest rate market, debt can become very expensive to manage and covenant breaches more common resulting in solvency and going concern issues. Inflation is also an issue for many entities to manage. Our advice is to ensure that projections are reasonable and realistic and going concern disclosures are made with sufficient detail in the financial statements if there are material uncertainties surrounding going concern.

Events occurring after year end and before completing the financial report

It is important to review any events that happen between the end of the year and the completion of the financial report. This review should determine if these events have any impact on the assets, liabilities, income, or expenses at the end of the year or if they involve new conditions that need to be disclosed. Covenant breaches post year-end need to be identified. Adjustments or disclosures relating to relevant events post-year end is important to investors and other stakeholders. Omission of such material information could be problematic, in particular in an uncertain economic environment.

Disclosures in the financial report and Operating and Financial Review (OFR)

Disclosure of information is important to investors and other stakeholders. Directors must ensure disclosures are specific to the entity’s circumstances and highlight changes from the previous period. Address uncertainties, classify assets and liabilities correctly, and explain the impact of economic conditions in the Operating and Financial Review. Discuss risks, strategies, and consider climate change and cybersecurity risks. Present non-IFRS profit measures accurately and disclose significant developments since end of last year in half-year reports.

Impact of uncertainty

Market and economic conditions are particularly uncertain this year, which impacts financial reporting in areas where significant estimates and judgements are required in the financial statements.

The impact will be different depending on industry, geography, markets, suppliers and customers but very few industries are not facing significant uncertainty.

Directors and financial statement preparers should take into account what the entity’s current performance is, what the future holds and how those factors impact on values of assets, provisions and business strategies.

“We have seen ASIC take more action against Directors in recent times and recommend that Directors are across all the significant estimates and judgements in their financial reports, including ensuring material disclosures are appropriate, complete and accurate. In an uncertain economic environment, more estimates and judgements are required in financial reporting particularly when incorporating forward-looking information,”

Rene Muller, Partner SW Assurance and Advisory Division

The particular market conditions highlighted by ASIC as those representing changing circumstances, uncertainties and risks are:

• availability of skilled staff and expertise, which can impact on revenue and costs
• impact of rising interest rates on future cash flows and on discount rates used in valuing assets and liabilities
• inflationary impacts that may differ between costs and income
• increases in energy and oil prices
• geopolitical risks, including the Ukraine/Russia conflict
• impacts of climate change, climate related events and transitioning to ‘net zero’
• technological changes and innovation
• COVID-19 conditions and restrictions during the reporting period
• changes in customer preferences and online purchasing trends
• discontinuation of financial and other support from governments, lenders and lessors
• legislative and regulatory changes
• other economic and market developments.

How SW can help

Our team of audit and assurance experts are fully informed of the ASIC focus areas and can assist with providing guidance for your year-end financial reporting, as well as keeping you abreast of developments from an Australian reporting context.

Reach out to our key contacts here for a conversation.

Key contacts

Jimmy Cao

The post ASIC focus areas for 30 June 2023 reporting appeared first on SW Accountants & Advisors.

Webinar 1 (18 March 2021): Removal of special purpose financial reporting

• Moving from Special Purpose to General Purpose Financial Statements
• Exempt entities
• Requirements of AASB 1060 i.e. New tier 2 General Purpose Financial Statements – Simplified Disclosures
• Applying AASB 1 First-time Adoption of Australian Accounting Standards

Webinar 2 (29 April 2021): Valuation of assets

• Identifying impairment indicators
• Fair valuing assets in accordance with accounting standards
• Estimating key inputs
• Accounting for impairment of assets

Webinar 3 (27 May 2021): Financial Reporting update for 30 June 2021

• Accounting standard changes
• Key focus areas for 30 June 2021 reporting
• ASIC update and focus areas
• Corporate governance update
• Other regulatory changes

Webinar 4 (11 November 2021): Financial Reporting update for 31 December 2021

• Accounting standard changes
• Key focus areas for 31 December 2021 reporting
• ASIC update and focus areas
• Corporate governance update
• Other regulatory changes
• Not-for-profit update
• Employee share schemes update

Series speakers

René Muller
Partner

Tom Mullarkey
Partner

Kerry McGoldrick
Partner

Contact us

If you have any queries or would like more information, please contact the Marketing team via marketing@sw-au.com.

The post Financial Reporting series 2021 appeared first on SW Accountants & Advisors.

Introduction

Whilst the removal of Special Purpose Financial Statements (SPFS) has yet to impact Not-for-Profit entities (NFPs), the AASB has introduced AASB 2019-4.

NFPs preparing SPFS from 30 June 2020 must now disclose its compliance with the recognition and measurement (R&M) requirements to the Australian Accounting Standard (AAS), including consolidation and equity accounting requirements.

Who is affected?

• Medium and large ACNC charities preparing SPFS that compliywith ACNC reporting requirements
• NFP entities lodging SPFS with ASIC (e.g. companies limited by guarantee)

Who is not affected?

• ACNC small charities
• ACNC charities not required to comply with ACNC reporting requirements due to transitional reporting arrangements
• NFP public sector entities
• FP and FP public sector entities preparing SPFS

What action must be taken?

1. Review existing accounting policies and R&M requirements in AAS to assess impact on any future transition from SPFS to any potential new reporting requirements
2. Draft disclosure in SPFS for approval by those charged with governance prior to year end

What are the disclosure requirements?

• The basis on which the decision to prepare SPFS was made
• Accounting policy in SPFS
  • Disclose an indication of where the accounting policy does not comply with the R&M requirements in AAS (except for consolidation and equity accounting), or
  • State that assessment on compliance has not been made
• Overall compliance with R&M requirements
  • Disclose whether or not, the SPFS overall comply with the R&M requirements in AAS (except for consolidation and equity accounting), or
  • State that such an assessment has not been made
• Application of consolidation and equity accounting requirements
  • Disclose whether or not interests in subsidiaries, associates or joint ventures have been consolidated or equity accounted consistent with requirements in AASB 10 and AASB 128. If not, disclose that fact and the reasons why
  • If assessment has not been made and not required by legislation to do so, disclose that no assessment has been made

Reference

Important Dates

Annual reporting periods ending on or after 30 June 2020.

How ShineWing Australia can assist

Contact one of our experts below to discuss how these financial reporting disclosure requirements affect your existing accounting policies.

Contacts

The post NFP Special Purpose Financial Statements appeared first on SW Accountants & Advisors.

In this webinar recording Bessie Zhang, Jimmy Cao, Tom Mullarkey, Callum Murray and Kerry McGoldrick covered the following topics:

• ASIC update and other regulatory changes
• Removal of Special Purpose Financial Reporting
• Asset valuation and impairment
• Financial reporting in a COVID environment
• Modern slavery statements

Contact us

The post Webinar: Financial Reporting update appeared first on SW Accountants & Advisors.

What is required?

As part of the Financial Viability Assessments, TEQSA requires education providers to submit the financial management accounts to 30 June 2020, which includes:

1. Balance Sheet as at 30 June 2020;
2. Profit & Loss Statement for 2019/20, or six months to 30 June 2020 if end of Financial Year is 31 December 2020;
3. Cash Flow Statement for 2019/20, or six months to 30 June 2020 if end of Financial Year is 31 December 2020; and
4. An acknowledgement letter confirming that the unaudited financial management accounts have been approved by a relevant committee (i.e. Corporate Governing Body, Finance Committee, Risk and Audit Committee, etc).

Also providers are required to submit total student headcount for each teaching period between 1 January 2019 and 1 September 2020.

Providers should also provide TEQSA with notes to the accounts which would explain relevant matters which go to TEQSA’s assessment of financial risk. Providers with an end of financial year at 31 December 2020 are required to include notification of any future transactions which may materially alter the value of the relevant risk ratios in the current financial period.

This information will enable TEQSA to provide a risk assessment with the most accurate information.

Impact on providers

The request from TEQSA is likely to divert scarce finance resources for the preparation and checking of the information required. Given the current Covid-19 impact for finance staff who are focussed on liquidity management and cost containment, the preparation of the various reports and notes may be an undue burden on the limited resources available.

How we can help

SW has extensive experience in working with clients in the higher education sector and are well placed to support you to undertake the preparation and checking of the financial information required for TEQSA.

Having worked with regulators, we understand the various financial ratios considered by TEQSA in assessing the risks and can therefore assist you in ensuring the information prepared is accurate and reflective of the operations and meets TEQSA’s needs.

We can also ensure that the notes to the accounts provide comprehensive explanations so that any forecasts/conclusions made by TEQSA are well informed thus preventing a risk assessment, which may adversely impact your operations.

Our experience

Our dedicated Education Industry Group has over 50 years’ experience in the education and training sector and in working with the various regulators.

Our experience provides you with confidence that we understand the specific operational requirements of the sector and can leverage learnings on how other higher education providers are handling similar issues.

The post TEQSA Financial Viability Assessments appeared first on SW Accountants & Advisors.

In this webinar recording Bessie Zhang, Rene Muller, Tom Mullarkey, Jimmy Cao and Callum Murray covered the following topics with nearly 500 attendees:

• COVID-19 impacts on financial reporting
• New Simplified Disclosure Regime (SDR) reporting and the removal of special purpose financial statements
• Accounting for leases
• ASIC update
• ACNC update
• Other regulatory changes

Contact us

The post Financial Reporting update appeared first on SW Accountants & Advisors.

Here are some of the key points you should be aware of:

• On first adoption, historical tax positions may need to be evaluated. At the very least, the income years open for amendment may need to be considered.
• The new requirements apply to income taxes only. They do not apply to indirect taxes, for example Goods and Services Tax or State Taxes such as stamp duties and payroll tax. Neither do they apply to employment related obligations such as employer superannuation contributions and work cover. Penalties and interests are only captured if they are accounted for as income tax expense under your accounting policies.
• The requirements are set out in AASB Interpretation 23 (“INT 23”) which entails a three step process as depicted below:

• Having a reasonably arguable position may not mean that the Taxation Authority will accept the tax treatment. You may need to quantify the probability that the Taxation Authority will accept or reject your position.

• You should consider having a conversation internally and with your auditors early to prepare for the adoption of INT 23. The questions to consider include:

  • Who determines the probability of acceptance/rejection by the Taxation Authority of the tax treatment (accept/reject probability)? Is it the finance team, the tax team or your advisors?

  • How do you deal with differences in probability assessments? Who has the final say?

  • How do we make the assessment more objective?

  • Can we apply an algorithm or formula based approach?

  • What are the relevant authorities to be considered in making the assessment?

  • What is the level of documentation expected by your auditors?

Our Corporate and International tax team has penned a detailed article on the new requirements and presented on this topic at our 2019 Complete Tax Solutions (CTS) Conference.  The article proposes a methodology to quantify the accept or reject probability which is directed towards reducing the subjectivity of the analysis.

If you would like a copy of the slide deck and article, please contact marketing@sw-au.com

Get in touch

Our experts can assist with further information.

The post Uncertain tax positions appeared first on SW Accountants & Advisors.