ASIC warns of risks in overstating asset values

The corporate regulator found a number of ASX-listed companies were overstating cashflow and assets.

ASIC’s surveillance of the financial reports covered the period from 2010 to 2019. Picture: Getty Images

The corporate regulator warned it will put revenue and writedowns under a microscope after it found a number of ASX-listed companies were overstating cashflow and assets.

The Australian Securities and Investments Commission said a recent review of accounts found that companies were making unrealistic and assumptions about future cashflows.

Following a review of 90 companies covering the February reporting season, ASIC made further inquiries on about 21, with the area of greatest concern relating to how companies recognised revenue and the valuation of non-financial assets.

The regulator said it was important that companies reported their financials accurately in light of the likely impact COVID-19 had dealt to balance sheets.

“These disclosures are important to inform investors and other users of financial reports given the estimation uncertainty associated with many asset valuations,” ASIC said. “They enable users to make their own assessments about an entity’s carrying values and risk of impairment”.

The comments come as reporting season is about to heat up from Monday with most listed companies expected to deliver either interim or full year results with the next four weeks.

ASIC called on directors and auditors to ensure the market was properly informed about asset values and future performance and focus on impairment of non-financial assets in financial reports and ensure.

ASIC’s surveillance of the financial reports covered the period from 2010 to 2019.

The regulator said its oversight over that period led to the material changes to about 5 per cent of reviewed reports, with the main changes to impairment of assets, revenue recognition and expense deferral.