The Manner in Which ASIC Has Made Changes regarding the Disclosure of the Financial Statement - Case Study Example

Table of Contents Executive Summary 2 Introduction 3 Accounting Standard Dislcosure Required in Australia 3 Current Accounting Policies 6 Bridging the Gap 8 Recommended Actions 9 Conclusion 10 References 11 Executive Summary The report shows the manner in which ASIC has made changes regarding the disclosure of different financial statement since June 30, 2012 and requires that the corporate entities make the required changes in their financial statememt. ASIC requires proper disclosure regarding Estimates & Accounting Policy Judgements, Revenue Recognition, Expense Deferral & Other Income, Asset Value, Off Balance Sheet Arrangement, and Current versus Non Current Classification. Thomas Reuters has been able to match the requirements of ASIC on most areas but needs to improve the disclosure aspect so that they are able to provide better information which is clear and will assist the user in proper decision making. Introduction The Australian government has brought around widespread changes in the different rules and regulations pertaining to Financial Reporting Disclosure in the Australian Corporate Sector. The government has made changes to the different requirements of the financial reporting which will thereby help to ensure that the corporate sector provides complete details regarding the different transactions which are taking place. This report looks to explore and present the different accounting standard disclosure which the corporate sector has to present. In addition to it the quarterly statement of Thomson Reuters is being analyzed to find out the manner in which the business has been able to bring about a complete transformation and ensure that the changes which has been presented by the accounting standard disclosure is being followed. This will thereby help to present the gap which exists between the disclosure requirements and the manner Thomson Reuters is presently working. This will help to generate the required steps through which the gap can be filled and the overall efficiency in disclosing the different transactions can be gained so that maximum operational efficiency is gained. Accounting Standard Dislcosure Required in Australia Australian Securities & Investment Commission (ASIC) prescribes the different rules for disclosure which the corporate sector has to follow and brings changes in the different rules pertaining to disclosure time and again. This has made ASIC come up with the following changes with effect from 30th June 2012 and are as Estimates & Accounting Policy Judgements ASIC requires that all corporate entities make proper disclosure of the different estimation in relation to income, expense, assets and liabilities in the financial information. The corporate entities have to provide complete description regarding all the transaction and no material information should be concealed (ASIC, 2013). This has increased the role of the directors as they have to ensure that proper disclosures are provided in the financial reports and all transactions are supported by material information so that there is no misrepresentation of information. Revenue Recognition, Expense Deferral & Other Income ASIC requires that the entities record their future income as up-front revenues by recognizing them as financial assets instead of intangible assets. This will help to record the transactions at a fair value instead of at the amortized value. The users of the financial statement will be thereby benefitted as it will help them to understand the manner in which the business has operated and grown and the different areas which has helped to contribute positively towards the growth (ASIC, 2013). Asset Value ASIC prescribes that the entities have to ensure that the financial statement reports the carrying value of the assets including tanglibles like goodwill so that the correct asset value is depcited in the financial statement. This will help to disclose the real value of the asset on a particular date and keep the economic consideration into effect. This will thereby help the user of the financial statement to understand the financial statement better and will determine the different standards based on which balance valuation is done (ASIC, 2013). Off Balance Sheet Arrangement ASIC states that the financial statement prepared by corporate entities has to clearly highlight the manner in which off balance sheet items have to be disclosed. This requires that the corporate entitiy provides the reason for not disclosing the off balance sheet item. The directors with regard to it has to carry out proper reviews to find out the reason for off balance sheet items and need to provide complete description about it (ASIC, 2013). Current versus Non Current Classification ASIC requires that the corporate entities properly classify both the current and non current assets and liabilities in their financial statement. This will be the responsibility of the directors to ensure that the current liabilities are settled within a period of 12 months as there have been situations when adjustments have been made to treat the same as non current liabilities. ASIC requires that the business or the corporate entity clearly highlights the manner and discloses all the assets and liabilities as current and non current (ASIC, 2013). Thus, ASIC has made several changes which the directors of different corporate entities have to follow for the smooth functioning of the organizatio. This will require proper estimation and monitoring of the financials and ensuring proper disclosures so that the effectiveness of the financial statement increases. Current Accounting Policies Thomas Reuters in their quarerly published financial statement has looked to evaluate the manner in which different changes in the reporting disclosure according to ASIC are being provided. This will help to improve the reliability and validity of the financial statement and will thereby ensure that the financial statement provides better information to the users. Some of the key aspects highlighted from the financial statement of Thomas Reuter are as Estimates & Accounting Policy Judgements Thomas Reuter in their half yearly statement has looked to provide complete details regarding the accounting policies and procedures which have been used. A complete detail regarding the different expenses, income, revenue and expenses has been provided. Further, the calculation of the different expenses has been shown clearly. This will help to ensure that the user of the financial statement is able to use it for decision making. This will also provide a directive through which the user of the financial statement will be able to look at the different assets, liabilities, profitability and examine the overall efficiency of the system. Revenue Recognition, Expense Deferral & Other Income ASIC requires that the entities record their future income as up-front revenues by recognizing them as financial assets instead of intangible assets. This will help to record the transactions at a fair value instead of at the amortized value. This is an aspect which is unclear within the financial statement as the financial statement doesn’t look to present the actual value and instead higlights the tangible value in case of goodwill. This has further been not segregated into the present value but instead the amortized value is highlighted. This is an aspect of the financial statement which requires correction so that the estimation of the different heads and the revenues and expenses are recognized correctly and properly. Asset Value ASIC prescribes that the entities have to ensure that the financial statement reports the carrying value of the assets including tanglibles like goodwill so that the correct asset value is depcited in the financial statement. No such calculation for the same has been highlighted which makes it difficult to understand whether the value is the correct asset value or the amortized value for goodwill. In case of other assets like plant and machinery and other fixed assets all have not been accounted at the fair value. Some of the assets like plant and machinery is accounted at fair value as depreciation on those assets are charged. In realtion to other assets no such proper disclosure is provided. ASIC requires that the directors look to ensure the all assets are recorded at fair value and is an aspect which has been ignored and needs to be rectified to ensure that the financial reports becomes better. Off Balance Sheet Arrangement ASIC states that the financial statement prepared by corporate entities has to clearly highlight the manner in which off balance sheet items have to be disclosed. This has been adhered in the financial statement as a disclosure is provided stating that the off balance sheet items and their arrangements are the same. This helps to ensure that they work in confirmity with the standards and ensure proper disclosure. Current versus Non Current Classification ASIC requires that the corporate entities properly classify both the current and non current assets and liabilities in their financial statement. Thomas Reuters have ensured that the assets and liabilities are classified as current and non current but no information or disclosure has been provided that all the current liabilities which the organzation had, has been cleared within a period of 12 months. This raises doubts and suspicion and requires to the verified so that it helps to ensure that the organization clearly follows the different guidelines which has been provided by ASIC and are able to adhere to the policy of complete disclosure. Bridging the Gap The different disclosure policy which Thomas Reuters has adopted and as required by ASIC highlights specific gaps which are as ASIC requires that the entities record their future income as up-front revenues by recognizing them as financial assets instead of intangible assets. This aspect hasn’t been followed by Thomas Reuters as they still look towards not disclosing the manner in which financial assets helps them to be converted into up front revenues With regard to asset value ASIC prescribes that the entities have to ensure that the financial statement reports the carrying value of the assets including tanglibles like goodwill so that the correct asset value is depcited in the financial statement. Thomas Reuters has only provided explanation for goodwill whereas in case of other intangibles and assets no description has been provided as there is no disclosure highlighting that the principle hasn’t been adhered Considering classifying the assets and liabilities as current and non current, ASIC requires that the corporate entities properly classify both the current and non current assets and liabilities in their financial statement. Thomas Reuters has ensured that their assets and liabilities are divided into current and non current but no disclosure pertaining to the fact whether some current asset or liabilities have been converted into non current assets or liabilities has not been disclosed. Thus, there exist some gaps between the ASIC requirements and the manner the financial statement is prepared by Thomas Reuters and has to be filled. Recommended Actions Thomas Reuters to ensure that they work according to the policy and rules prescribed by ASIC has to look towards the following actions Thoman Reuters have to ensure that the assets they are carrying at fair value. A complete disclosure regarding the depreciation or any other changes which will help to ensure that the assets are provided at fair value should be ascertained. This will help to provide complete and true picture of the assets and will help to improve the overall relevance of the financials statement Thoman Reuters need to ensure that the financial assets which are future earning assets should be clearly highlighted so that it will help the users to understand the actual earning. This will also provide complete description of the assets and the manner in which the business has used the assets to generate the required returns Thomas Reuters further have to ensure that a proper disclosure is provided which will help to ensure that any asset or liabilities which has been converted from current to non current is accounted for. This will help to improve the relevance of the entire financial statement and ensure that complete disclosure is provided in the financial statement Conclusion The report shows the manner in which ASIC has made changes regarding the disclosure of different financial statement since June 30, 2012 and requires that the corporate entities make the required changes in their financial statememt. ASIC requires proper disclosure regarding Estimates & Accounting Policy Judgements, Revenue Recognition, Expense Deferral & Other Income, Asset Value, Off Balance Sheet Arrangement, and Current versus Non Current Classification. Thomas Reuters has been able to match the requirements of ASIC on most areas but needs to improve the disclosure aspect so that they are able to provide better information which is clear and will assist the user in proper decision making. References ASIC, 2013. Attachment to 12-140MR: ASIC’s areas of focus for 30 June 2012 financial reports. 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