Watchdog barks at accounts
The Australian Securities and Investments Commission said it had made 34 inquiries into listed and public interest entities after they failed to factor in large write-downs to the value of their assets.
It made another 14 inquiries into companies that had prematurely recognised the revenue from goods and services before they had actually been sold.
"We continue to identify matters such as inadequate impairment of assets and inappropriate recognition of revenue in some cases," ASIC Commissioner John Price said.
"While the quality of financial reporting in Australia is comparable with other major jurisdictions ... Preparers of financial reports should ensure that they provide high-standard, useful and meaningful information."
A total of 70 inquiries have been made into company reports so far as part of a review into 280 companies during the period ending June 30.
The probes have sparked a number of companies to make significant write-downs or reissue financial statements to include material disclosures, ASIC said. "These disclosures are important to investors and other users of financial reports," it said.
"They enable users to make their own assessments about the carrying values of the entity's assets and risk of impairment."
Several companies have announced profit downgrades in recent weeks due to asset write-downs, including insurer QBE and rail company Aurizon.
Coal freight operator Aurizon said on Monday it would be forced to revise the value of its fleet of locomotives and wagons by 4 per cent, leading to a $150 million write-down in the first half.
Earlier in the month, QBE wiped billions from its market worth when it shocked investors with a $600 million write-down of its US businesses.
ASIC said the review had revealed a number of other concerning trends among company reports, including companies using "boilerplate" accounting policies to generalise information.
It said there was also a tendency for companies to describe expenses as "one-off" or "non-recurring", even though they were "inherent to the entity's business and occur every year". ASIC said 12 inquiries had concluded without changes to financial reports.
Frequently Asked Questions about this Article…
ASIC is investigating company financial reports because many companies are failing to accurately disclose the value of their assets, leading to concerns about large write-downs and premature revenue recognition. These issues can mislead investors and other users of financial reports.
Asset write-downs occur when a company reduces the book value of its assets, often due to a decrease in market value. They are important for investors because they can significantly impact a company's financial health and profitability, affecting investment decisions.
ASIC has made a total of 70 inquiries into company financial reports as part of a review of 280 companies during the period ending June 30. These inquiries focus on issues like asset write-downs and revenue recognition.
ASIC's inquiries have led companies like QBE and Aurizon to announce significant profit downgrades due to asset write-downs. For example, QBE reported a $600 million write-down of its US businesses, while Aurizon revised the value of its fleet, resulting in a $150 million write-down.
ASIC has identified several issues, including inadequate impairment of assets, inappropriate revenue recognition, and the use of 'boilerplate' accounting policies. Companies also tend to describe recurring expenses as 'one-off' or 'non-recurring,' which can mislead investors.
Accurate financial reporting is crucial for everyday investors because it provides reliable information about a company's financial health. This transparency helps investors make informed decisions about buying, holding, or selling stocks.
Companies should ensure their financial reports provide high-standard, useful, and meaningful information. This includes accurately disclosing asset values, recognizing revenue appropriately, and avoiding generalized or misleading accounting practices.
Investors can use financial reports to assess a company's risk of impairment by examining disclosures related to asset values and write-downs. These reports enable investors to make their own assessments about the carrying values of a company's assets and potential risks.
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