ASIC Updates Financial Reporting and Audit Focus Areas

Financial Reporting Focus Areas

Australia’s financial reporting and independent audit regulator, ASIC, recently updated its guidance for directors, auditors and preparers of financial reports on the areas that it believes require particular attention for the year ending 30 June 2025 (ASIC 25-079MR).

ASIC has reiterated that its focus is firmly on how significant judgements and estimates are formed and applied by directors and management in preparing reliable financial reports. These judgements must be reasonable, supportable, adequately disclosed and clearly explained to users of the financial report.

The key judgement areas that ASIC has highlighted include:

  • Revenue recognition, including principal versus agent considerations

  • Asset impairment, asset carrying amounts and fair value measurement

  • Recognition and measurement of provisions and other liabilities

Other enduring ASIC reporting areas, such as subsequent event disclosures and the Operating and Financial Review for public companies, continue to attract ASIC’s attention.

ASIC also reminded directors and management to consider the appropriate classification of assets and liabilities between current and non-current in the statement of financial position. When assessing borrowing classifications, consider maturity dates, payment terms and ongoing compliance with applicable debt covenants.

General Principles for High Quality Financial Reporting

ASIC noted that disclosures throughout the financial report should:

  • Be specific to the entity and its unique business model, business activities and risks

  • Explain material changes to its financial position and operating performance

  • Clearly explain changes in key estimates and judgements from previous periods

  • Include disclosure of sensitivities to critical valuation or measurement inputs (such as revenue and expense growth rates, commodity prices and exchange rates and present value calculation discount rates).

Sustainability Reporting

For the first time, ASIC is preparing to review sustainability reporting, which is now required to be incorporated into the financial report by larger entities, in accordance with AASB S2 Climate-related disclosures. The first round of mandatory sustainability reporting, starting with larger entities, will be for the year ending 31 December 2025.

Consolidated Entity Disclosure Statements

ASIC has provided further guidance in relation to the preparation of Consolidated Entity Disclosure Statements, which are required to be included in the financial report for all public companies. This guidance, which relates to disclosure of the tax residency status of entities within a consolidated group, is included in ASIC Information Sheet 284.

Ongoing Surveillance

ASIC will continue its program of reviewing financial reports, selected based on its assessment of potential risks of material misstatement and publicly available information.

Following these reviews, ASIC may request specific information from the entity’s directors, management and the independent auditor. ASIC has noted that, where the prior period financial information has been restated, this is an indicator of a potential risk of material misstatement.

In the next twelve months, ASIC expects to increase its surveillance of the role and performance of independent auditors. This program will include an increased number of random audit file inspections and a detailed review of compliance by independent auditors with relevant conflicts of interest and independence requirements.

Considerations for your 30 June 2025 Financial Reporting Process

The key focus areas relating to making judgements and accounting estimates are similar from period to period. The focus on making complex estimates and judgements is expected.

However, ASIC is reminding financial statement preparers and directors to enhance reporting and disclosures to provide users with a high level of understanding of the entity’s:

  • Operations, financial position and performance, including material changes over recent periods

  • Business strategy, business risks, challenges and sensitivities

  • Emerging and anticipated environmental and climate related risks and opportunities.

In the next few years, more entity’s will be required to prepare sustainability reporting. Even for businesses where the effects of climate change are not expected to be significant, a program to identify and assess risks and opportunities and prepare reliable sustainability reporting will be required. Before the statutory requirements apply, directors may be required to provide sustainability information to investors, lenders, potential customers, suppliers and regulators. The potential effort involved should not be underestimated.

If you require further information or assistance on any of these matters, please contact one of our Directors.

 The full text of the announcement can be found here.

David Sinclair