The Australian Securities and Investments Commission (ASIC) has highlighted a number of focus areas for directors in 30 June 2011 financial reports after releasing the results of its reviews of financial reports for the year ended 31 December 2010.

 

ASIC Commissioner Michael Dwyer, has warned that company directors and accountants should ensure that material disclosures necessary for investors to understand the financial position and performance of a company should be included in financial reports.

 

ASIC’s reviews focused on eleven areas including:

  • segment reporting
  • consolidation of controlled entities
  • use of the going concern assumption
  • asset impairment
  • fair value of financial assets
  • financial instrument disclosures
  • disclosures of estimates and accounting policy judgements
  • accounting for business combinations
  • related party disclosures
  • operating and financial review, and
  • alternative profits

 

Mr Dwyer said these aspects of financial reporting must remain key areas of focus for directors in reporting at 30 June 2011.

 

‘Segment information is vital information for investors and other users of financial information in understanding the performance of an entity’s business activities.’

 

‘Financial reports should also disclose key components of statutory profit in accordance with accounting standards to assist investors to understand the result.’

 

ASIC has also called for more clarity in reporting on remuneration of directors and executives.  

 

ASIC Deputy Chairman, Belinda Gibson, said that in examining compliance with the statutory requirements, ASIC’s review had exposed some areas where disclosures about remuneration arrangements could be more effective.

 

These included:

  • the board’s policy on the nature and amount of remuneration of the key management personnel
  • the non-financial performance conditions in short-term incentive plans
  • why performance conditions have been chosen; and
  • the terms and conditions of incentive plans.

ASIC has provided some examples of of where companies had provided better disclosure.

 

“We encourage company directors to prepare this year’s reports with the overriding objective in mind of explaining the relationship that exists between the company’s performance and the remuneration of its’ executives’, Ms Gibson said.

 

More information is at www.asic.gov.au