The corporate regulator has revealed it’s had to make enquiries with 27 ASX listed companies about their 2020 financial reports.
The Australian Securities and Investments Commission (ASIC) announced Thursday that it had reviewed financial reports for the year ending 30 June 2020 for 170 listed companies.
This resulted in the regulator contacting 27 companies regarding 58 different matters to demand a ‘please explain’.
Issues around disclosures about the effect of COVID-19 dominated this year’s enquiries.
“Many companies made useful and meaningful disclosures on the impact of COVID-19 conditions. However, some entities with businesses adversely affected by the pandemic did not appear to give sufficient attention to the reporting of asset values and financial position,” stated ASIC.
The commission also enquired when it thought the company “made unrealistic and unsupportable assumptions about future cash flows“.
Four of the 27 companies have been let off so far, while investigations into the other 23 are continuing.
$60 million of profit wiped from 4 companies
An ASX company is sometimes compelled to amend its reported numbers after an ASIC enquiry.
This has already happened to Nitro Software Ltd (ASX: NTO), Kresta Holdings Ltd (ASX: KRS), Elixinol Global Ltd (ASX: EXL) and Lawfinance Ltd (ASX: LAW) for their 30 June 2020 reports.
Collectively $60 million of profit was wiped from these companies due to the corrections.
ASIC did acknowledge that the coronavirus pandemic would have forced many companies to use “probability-weighted scenarios” to come up with their figures.
A simple disclosure of assumptions in the financial report would have covered this, according to the commission.
Listed companies need to improve to keep investors sufficiently informed.
“Our findings emphasise that directors and auditors need to focus on impairment of non-financial assets given the extended impact of the COVID-19 pandemic, to ensure that the market is properly informed about asset values and the expected future performance implied by those values,” stated ASIC.
ASIC had previously warned that directors are “primarily responsible” for the quality of the company’s financial report.
“Companies should apply appropriate experience and expertise, particularly in more difficult and complex areas of accounting policies and estimates.”
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Motley Fool contributor Tony Yoo owns shares of Nitro Software Limited. The Motley Fool Australia has recommended Nitro Software Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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