The Australian Securities and Investments Commission (ASIC) has made clear to company directors that they have an obligation to question the accounting assumptions contained in financial reports, even if they are not specifically qualified to do so.
The regulator has delivered its message in a Focus report published on Friday, making clear to directors that a lack of accounting expertise should not be used as an excuse.
"Even though directors do not need to be accounting experts, they should seek explanation and professional advice supporting the accounting treatments chosen if needed and, where appropriate, challenge the accounting estimates and treatments applied in the financial report," the ASIC document said.
It said that directors should particularly seek advice where a treatment does not reflect their understanding of the substance of an arrangement.
Detailing ASIC's areas of focus, ASIC Commissioner John Price said directors and auditors needed to focus on values of assets and accounting policy choices which were important to providing meaningful information for investors and everyone else who uses financial reports.
"ASIC encourages preparers and auditors of financial reports to carefully consider the need to impair goodwill and other assets. ASIC continues to find impairment calculations that use unrealistic cash flows and assumptions, as well as material mismatches between the cash flows used and the assets being tested for impairment."
The ASIC report said particular focus should be given to assets of companies in extractive industries and mining support services, as well as asset values that may be affected by digital disruption.
