An Overview of ASIC's Guidance on Annual Reporting: Operating and Financial Review

As public companies finalise their Annual Reports for FY22, ASIC has released guidance on its focus areas for 30 June 2022 reporting. In particular, ASIC has indicated that it will be paying close attention to the disclosure of risk in the Operating and Financial Review (OFR). Accordingly, in the interests of best practice corporate governance, and avoiding ASIC’s cross hairs, we have distilled the highlights of ASIC’s guidance.

 

ASIC has noted that its key areas of focus for FY22 are:

  1. asset values;

  2. provisions;

  3. solvency and going concern assessments;

  4. events occurring after year end and before completing the financial report; and

  5. certain disclosures in the financial report and OFR.

ASIC has also advised that the board and management should assess, and if appropriate disclose in the OFR, how the current and future performance of the company, the value of its assets and provisions, and business strategies may be affected by economic and market conditions, particularly those caused by:

  1. COVID-19 conditions and restrictions during the reporting period;

  2. changes in customer preferences and online purchasing trends;

  3. use of virtual meetings and more flexible working arrangements;

  4. the availability of skilled staff and expertise;

  5. ongoing restrictions to deal with COVID-19 in different jurisdictions;

  6. the impact of rising interest rates on future cash flows and on discount rates used in valuing assets and liabilities;

  7. increases in oil prices;

  8. geopolitical risks, including the Ukraine/Russia conflict;

  9. commitments and policies on climate and carbon emissions by governments;

  10. technological changes and innovation;

  11. legislative and regulatory changes; and

  12. other economic and market developments.

 

Operating and Financial Review (OFR)

The OFR should tell the story of how the entity’s business is impacted by both COVID-19 and non-COVID-19 factors:

  1. explain risks, management strategies, future prospects, and the underlying drivers of the results and the Company’s financial position;

  2. disclose the most significant business risks at whole-of-entity level that could affect the achievement of the disclosed financial performance or outcomes, including a discussion of ESG risks:

    1. This does not mean the Company should provide an exhaustive list of generic risks that might potentially affect a large number entities. ASIC considers this unhelpful.

    2. Risks should be described in context (for example, why the risk is important, its potential impact, and factors within the control of management).

    3. Accordingly, we strongly recommend the inclusion of the Company’s full set of material risks as disclosed in recent investor presentations, capital raising documents and prospectus (with any updates as required);

  1. account for any support provided by government, lenders, landlords and others during the reporting period and include material amounts, duration of support, and any impact arising from its discontinuation; and

  2. forward-looking information must have a reasonable basis and the market should be updated immediately if circumstances change.

 

Please note that ASIC’s guidance provides further information regarding other accounting matters that it intends to focus on should the company be selected as part of ASIC’s review process. Accordingly, if you wish review the entire 2022 guidance it is available here. You can view further guidance from ASIC in Regulatory Guide 247 Effective disclosure in an operating and financial review.

 

Please reach out to us if you would like further guidance around the Annual Report disclosures required by ASIC or ASX or click here to download a free copy of our 2022 Australian Annual Report Disclosure Checklist.