- Impairment and asset values, revenue, and the estimates and assumptions involved remain the most challenging areas
- The impacts of the pandemic and associated uncertainty will be a focus for 2021 reporting and an important factor in the next round of audit inspections
- The next steps following the parliamentary inquiry on audit, and international moves around non-financial reporting, will be key in 2021
ASIC’s latest audit inspections show impairment and asset values, in addition to revenue, and the estimates and assumptions involved remain the most challenging areas.
These were revealed by Doug Niven FCA, Chief Accountant at Australian Securities and Investments Commission (ASIC) in a discussion with Amir Ghandar FCA, Reporting and Assurance Leader at Chartered Accountants ANZ.
Niven shed light on the ASIC’s latest audit inspection findings and other critical topics around financial reporting in Australia, including the final parliamentary audit inquiry report.
“More work needs to be done by the audit firms to continue improving the audit quality,” he said. “Audit quality is particularly more important in the context of COVID-19 conditions. There can be more difficult judgements areas around on asset values, liabilities, solvency, going concern and disclosures, as well as challenges from remote work arrangements.”
ASIC encourages firms to perform root cause analysis on both internal and external audit inspection findings.
“While the auditors have the primary responsibility, ASIC recognises the financial reporting eco-system is also vital including the role of directors and management,” Niven said. “Directors have the overall responsibility for financial reporting.
“Audit is a key part of providing confidence and independent assurance and management also play a crucial role in supporting the audit process by keeping proper records and applying expertise through the process to ensure high-quality financial information for the audit.”
What are the key messages for auditors, directors and CFOs?
The pandemic continues to create uncertainty and ASIC will focus on the associated difficult judgements around valuing assets, provisions, determining and disclosing contingencies, asking questions around solvency, and going concern. Clear and adequate company disclosure will be a critical way of addressing this uncertainty.
The parliamentary inquiry into audit regulation
Niven highlighted the importance of the inquiry’s recommendations on internal controls and independence.
Niven appreciates the work of the IFRS foundation in bringing greater consistency around the financial reporting framework globally and consultation paper on having a sustainability board that can sit alongside the IASB.
REP 677 Audit inspection report: 1 July 2019 to 30 June 2020
Findings from the review of audit files and recommendations from reviews of conflicts of interest, governance and accountability at the larger audit firms.Read more