ASIC pushes for more transparency for shareholders
Improved communication practices are key for companies.
In the lead-up to the 2015-2016 reporting season for companies, the Australian Securities & Investments Commission (ASIC) has advised publicly listed companies to make sure they follow better accounting practices so that shareholders can understand what is happening to their investments.
ASIC says it expects companies to better communicate with stakeholders by adopting realistic asset valuations and appropriate accounting policies.
Some of the key problem areas to address include material disclosure of information useful to investors, client monies, cash flow, forecasts and assumptions, asset values, revenue recognition, expense deferral, tax accounting and future financial positions.
Efforts should be made to communicate information more clearly in financial reports to bring clarity to shareholders, ASIC said.
ASIC says financial services licensees should ensure client monies are appropriately held in separate, designated trust bank accounts and that funds be applied in accordance with client instructions, compliant with the Corporations Act.
Companies have been instructed to use sufficiently reliable cash flow estimates. Discounted cash flows are not to be used to determine fair value, less costs of disposal, where forecasts and assumptions are not reliable.
Pricing, valuation, accounting for inventories and rebate arrangements should also be a focus for companies.
Including items of income and expense in other comprehensive income, rather than profit/loss should only occur where specifically permitted by accounting standards.
Disclosures help shareholders assess the reported financial position and performance of a company. ASIC maintains these should be made specific to assets, liabilities, income and expenses. Disclosure of key assumptions and a sensitivity analysis are also important.
Funding for ASIC was increased earlier this year to ensure it could minimise bad behaviour by banks and other institutions.
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