“We target financial reports where we have identified potential issues in revenue recognition or asset valuation.”

Australia’s Securities and Investments Commission (ASIC) today unveiled findings from its inaugural integrated financial reporting and audit surveillance program.

The results led to significant adjustments, amounting to $215 million, in previously released financial information by companies listed on the Australian Securities Exchange (ASX) and other large entities.

A wake-up call for companies and auditors

The findings, detailed in Report 774 for the fiscal year 2022–23, spotlighted several areas needing greater focus from both preparers and auditors of financial reports.

These include insufficient disclosure of material business risks in the operating and financial review, asset impairments, and issues with revenue recognition. ASIC reviewed 180 financial reports and 15 related audit files from July 1, 2022, to June 30, 2023.

ASIC adopts a risk-based criterion for selecting financial reports for review. “We target financial reports where we have identified potential issues in revenue recognition or asset valuation,” said Greg Yanco, ASIC Executive Director for Regulation and Supervision. He added that audit files are then selected based on the potential for material inaccuracies.

Yanco emphasized that everyone involved in the financial reporting chain, from report preparers to directors to auditors, bears responsibility for improving the quality of financial reports and audits. Companies and auditors with significant deficiencies could be referred to ASIC’s enforcement team.

ASIC has communicated its findings to the directors of 11 companies, encouraging them to have constructive discussions with their auditors to elevate the quality of both financial reporting and audits. The regulatory body also expects all audit firms to focus on quality by identifying the root causes of audit findings and taking corrective actions.

Over 150 registered company auditors and 50 authorized audit companies are involved in auditing one or more listed entities.

ASIC’s program serves as a wake-up call for companies and auditors to pay heed to the areas highlighted by the regulator. The broad-based scrutiny aims to bring about greater transparency and accountability in Australia’s financial markets, thereby promoting high-quality financial reporting and continuous improvement in audit quality.