Companies told not to hide JobKeeper and other taxpayer cash from investors

Corporate watchdogs have warned companies not to mislead investors as they receive billions of dollars of taxpayer-funded support to combat COVID-19.

An entity ‘should carefully consider’ whether COVID-19 has had or will have an adverse effect on its own current or future business activities.

Companies have been put on ­notice to ensure they fully disclose the billions of dollars of JobKeeper payments and other taxpayer-funded support that have flowed into their coffers when they ­release their full-year accounts next month.

The Australian Accounting Standards Boards, the commonwealth agency responsible for ­developing and maintaining ­financial reporting standards, has warned companies not to mislead investors and correctly allocate government support ahead of the financial reporting season.

Some of Australia’s biggest and well-known companies, including Cochlear, Tabcorp, Crown Resorts, Myer and Flight Centre, lined up for government JobKeeper cash, fuelling the need for investors to accurately gauge the health of those businesses.

But the AASB warning applies equally to companies that have experienced earnings bonanzas during the pandemic, as well as those who have suffered revenue wipe-outs.

The AASB said companies that had been beneficiaries of the COVID-19 pandemic, such as those that had retooled to focus on in-demand products like hand sanitiser, must ensure they disclosed to investors the sustainability of their earnings uplift.

“Consideration might need to be given to the sustainability of the repurposing if, for example, the market for sanitiser is at risk of becoming oversupplied in the foreseeable future,” the AASB said in guidance available to companies.

“Given the unprecedented impacts on entities, clear and tailored disclosure about any form of material government assistance received and conditions … it is important to ensure that the financial statements are not misleading and to provide users with the information they need for making decisions.”

For companies battling earnings erosion, AASB warned the COVID-19 pandemic was not an excuse to issue mass writedowns and dodge earnings guidance.

“The mere existence of COVID-19 and its related government-imposed restrictions, in and of themselves, do not necessarily indicate that an asset may be impaired,” AASB warned.

“Therefore, an entity should carefully consider whether COVID-19 has had or will have an adverse effect on its own current or future business activities and the manner in which its assets are or will be used and therefore how that might impact the value of those assets relative to the carrying amounts of those assets.”

Already some companies have been forced to amend financial disclosures. On Tuesday, Melbourne-based listed freight group K&S corrected its earnings guidance after previously reporting its statutory net profit before tax and underlying profit before tax for the year to June 30 under the incorrect title. It also reiterated the scale of its JobKeeper support.

“Based on unaudited management accounts, K&S Corporation currently anticipates that reported statutory net profit before tax for the year ended June 30 will be between $15.8m and $16.8m, compared to the prior comparative period statutory result of $3.2m,” K&S said in the correction. “K&S Corporation’s statutory result for the year ended June 30 includes the receipt of $12.4m of JobKeeper subsidies on a before tax basis in the June 2020 quarter.”

A spokesman for the ASX said it acknowledged there were “particular disclosure challenges for listed entities arising from the COVID-19 pandemic and that different listed entities are being affected in different ways”.

But he said the ASX would continue to monitor disclosures closely. The Australian Securities & Investments Commission will also be applying further scrutiny, reviewing the earnings reports of 200 of the nation’s larger companies.

The increased scrutiny comes after Josh Frydenberg relaxed continuous disclosure laws in late May, so companies and officers would only be liable for breaches if there had been “knowledge, recklessness or negligence” with respect to updates on price sensitive information to the market.

But ASIC has continued its “laser focus” on disclosures, saying the Treasurer’s temporary changes applied only to civil laws, not criminal laws.

“In the current environment, the quality of financial reports and related disclosures is more important than ever for investors and to maintain confident and informed markets,” ASIC chair James Shipton said.