Asic New Disclosure Policies: Crown Limited - Case Study Example

A REPORT ON ASIC NEW DISCLOSURE POLICIES: CROWN LIMITED CASE By Student’s Name Code + Course Name Professor’s Name University Cite, State Date Table of Contents Executive Summary…………………………………………………………………………….3 Introduction……………………………………………………………………………………..4 1. Disclosure in the OFR……………………….………………………………………….4 2. Off-balance sheet arrangement & new standards……………………………………….5 3. Assets values and impairment testing…………………………………………………..5 4. Going concern…………………………………………………………………………..7 5. Revenue recognition and expense deferral………………………….…………………..8 6. Financial instrument values………………………………………….………………….8 7. Estimates and accounting policy judgments……………………………..……………..9 8. Non-IFRS financial information………………………………………………………..9 9. Related party disclosures…………………………………………….………………….9 10. Amortization of intangible assets……………………………….……………………..10 Conclusion and Recommendations……………………………………..………………………10 References………………………………………………………………………………….…...11 Executive Summary In regards to the disclosure in the OFR, Crown Limited has made sure that its financial performance are depicted within the Directors’ report. However, the firm fails to disclose its business strategies and future prospects of financial gains. The company fails to adopt AASB 10, 11 and 13 till 1 July 2013, asset value and impairment testing is conducted effectively. Requirements for revenue recognition and expense are depicted in accordance with the stipulation laid out within ASIC. Information pertaining to related parties including key management personnel and the parent entity are fully disclosed. The financial values of financial instruments are also well stipulated. The going concern and the non-IFRS disclosure are not directly provided but they can be deduced given the activities of the company financial statements. Introduction The ASIC provides a framework that should be adopted by all listed entities within the ASX. The framework provides for at least ten requirements that are aimed at providing the potential investor with additional qualitative information pertaining to an entity’s financial performance and financial position. For this assignment, the paper provides a closer overview of Crown Limited 2013 annual report and thereafter ascertains whether the firm has ensured the conformance to the aforementioned stipulation of accounting standards. 1. Disclosure in the OFR It is ascertained that ASIC calls for disclosures in both operational and financial reviews of business entities under the RG247 requirement. The requirement postulates that an entity’s financial report should postulate elements dealing in operations, company immediate financial position as well as qualitative information pertaining to business strategies as well as prospects for future financial years. Analysis under this requirement calls for an entity to provide relevant information pertaining to immediate drivers of the company’s financial performance and the manner for which it could affect operations in the future. For purposes of ensuring that the disclosed statements do not conflict with legislative laws they are should appropriately framed stating that they were prepared with the information that was available at that very time, they should postulate a reasonable basis and also, there should be ongoing compliance with continuous level of disclosure on company commitments in the case of events or results for forward looking statements within the OFR segment. For the case of Crown Limited 2013 annual report, the OFR segment is not provided at all as a separate segment that should provide clear analysis on the immediate activities regarding operations and financial position of the firm. The report also fails to stipulate the business model and strategies of the firm. Notwithstanding, the EBITDA performance is partly disclosed within the Chief Executive Officer’s report. Some of the notable drivers of performance mentioned within the section involve the different business units of the entire business that includes; Australian Integrated Resorts and Melco Crown Entertainment (MCE). The directors’ statutory report provides a brief overview of the OFR however; it omits to avail information related to Crown’s business strategies and prospects for possible future financial years. The non-disclosure is ascertained to the assumption that it might led to unreasonable prejudice to the activities of the entity as a whole (Crown Limited 2014, pg 45-46). 2. Off-Balance Sheet Arrangements & New Standards The requirement postulates that entities should by the end of 1 January 2013 adopted the AASB 10, 11 and 13. It also calls for the disclosure of an entity that has failed to apply the aforementioned new standards. Significantly, appropriate information that is deemed relevant to the assessment of the possible impacts the adoption of the new standards should be reflected on the financial annual report within the initial application periods. For the case of Crown Limited, this ASIC requirement has not been adopted yet. Under the statement of compliance section of the report, the annual report stipulates that it had only conformed to AASB 2011-9 that focuses on the presentation of other comprehensive income. However, such new standards as AASB 10, 11 and 13 have not yet been adopted until 1 July 2013. Consequently, the company discloses that its inability to adopt the new standards within the current financial period does not in any way pose significant impact on the group activities. 3. Assets Values and Impairment Testing Under this requirement, ASIC identifies areas attributed to recoverability prospects of carrying values of an entity’s asset-base that might include goodwill, intangibles and property and equipment. Some of the areas that should be affected by this new standard include; first, in cases of mismatch of cash flows in PV computations as well as assets tested whereby entities continue to involve cash flows in establishing the recoverable amounts of any given cash generating unit but which are not compared to all of the carrying values attributed to assets that generate the aforementioned cash flows. Second, in cases of utmost reasonableness of cash flows and assumptions in the course of establishing recoverable amounts, which in most cases are unreasonable enough in matters related to historical cash flows as well as in the manner for which a firm access funding and stipulates its immediate market conditions. Third, it occurs in cases of identifying assets and ash generating units of an entity in order to prevent cash flows from being used wrongly to support the activities of other carrying values of assets. Fourth, it occurs in cases where incomplete disclosures are provided in relation to assumptions of material asset impairment calculations. Notably, disclosures should be made in order to avail information to investors and other users of financial statements. For the case of Crown Limited, the annual report provides an intrinsic segment on the accounting assumptions that are related to impairment of goodwill and casino licenses depicting indefinite useful lives. Goodwill and casino licenses are affected with useful lives after a complete estimation of the recoverable amounts of the CGUs are determined. For the impairment of the entity’s property, plant and equipment, their immediate carrying values are analyzed whenever there are probable alterations in situations postulating that the carrying values might be recovered altogether. Significantly, for the assets that fail to generate larger independent cash inflows, it is ascertained that the recoverable amount is established for the CGU to the exact asset. Consequently, in cases where the carrying values are perceived to exceed the estimated recoverable amount, either the assets or the CGUs are written down to their immediate recoverable amount. In regards to the entity’s recoverable amounts of assets, it is ascertained that assessments are conducted in order to ascertain whether any of it assets might undergo through impairment process. The group entity makes sure to make a formal estimate of its immediate recoverable amounts. In the event that the carrying value of a given asset is deemed to having exceeded its recoverable amount, then the asset is depicted as having been impaired and thus, it is written down to its recoverable amount for that matter. It is further noted that the recoverable amount is depicted by the greater of fair values less the immediate costs to sell and values under utilization. Subsequently, in the course of ascertaining impairment of assets, they are grouped at their lowest levels for which they can be separate identifiable cash flows, which are mostly independent of the cash flows from other assets or CGUs. For purpose of analyzing assets value in use, the estimates of future cash flows are substantively discounted to the PVs using a post-tax discount rate that depicts present market analysis of the time values of both money and asset-specific risk. For the sake of impairment testing, the entity’s management estimated that PV of the future cash flows that were expected to be generated from its operations and the ultimate proceeds from disposal activities. The calculations use projections attributed to the cash flows that are focused on past performances and expectations resulting from future use of four-year cash flow financial periods. It is further stated that reasonable possible alterations in the fundamental assumptions would not in any way result to the carrying amount of the investments being able to exceed the immediate recoverable amounts hence providing unreasonable analysis to the potential investors of the entity as a whole. 4. Going Concern For Crown Limited, the assumption focused on going concern has not been disclosed both within the director’s report and also, within the notes section of the financial statement. However, a closer look at the financial reports postulates that there is a possibility of the firm’s operations surviving into the future. Both income levels and loan debt management provide enough information of a possible guarantee into the future. 5. Revenue Recognition and Expense Deferral Crown Limited ensures to classify assets into financial and non-financial asset-base. Financial assets are categorized in regards to the objective of the entity’s immediate business model as well as the attributes awarded to a contractual cash flow. The entity provides the stipulation that revenues are recognized and also, measured at their immediate fair values to a limit that receivables depict a probability of future economic benefits. Significantly, revenues is recognized in the event that there is a sale of goods, services rendered, in cases of interest accruals as well as when shareholders’ right to receive dividend payment is determined. Although it is not indicated, this also goes for the expenses variables of the firm. 6. Financial Instrument Values In regards to financial instrument values, ASIC directs that their valuation should be focused on both quoted prices and observable market information. The assumptions made should be supportable taking into account such factors as nature of financial instruments as well as the current economic conditions. Methods and assumptions used for valuation as well as well as asset and liabilities classification into current and non-current should be adhered to. Adherence to AASB 13 of Fair value measurement is also a mandatory. For the case of Crown Limited, both assets and liabilities are represented in both current and non-current columns. Both the fair values and methods used in estimating fair values of the financial instruments are provided in regards to such valuation techniques as quoted market price, observable inputs and also, non-market observable models (Crown Limited 2014, pg. 136). However, the adoption of AASB 13 –Fair Value Measurement, has not been adopted yet till 1, July 2013. 7. Estimates and Accounting Policy Judgments Crown Limited’s annual report provides a detailed segment on the summary of significant accounting policies, estimates and assumptions adopted within the report. Immediate carrying amounts of given set of assets and liabilities are mostly established on the judgments, estimates and assumptions of future activities. Some of these assumptions and estimates involve those attributed to impairment of goodwill and casino licenses, fair value measurements, taxes and doubtful debts. 8. Non-IFRS Financial Information The ASIC requires that all listed entities should ensure that a continuous process is set in place to review their use of non-IFRS information in relation to the RG 230 requirements. Crown Limited directors seem to have ensured that the non-IFRS are disclosed continuously to the potential public. 9. Related Party Disclosures ASIC requires listed entities to ensure that related party disclosures are affected in relation to the underlying accounting standards. The disclosure is aimed at assisting potential investors in comprehending an entity’s financial performance and position as well as accountability of the entity’s management and director’s team. Crown Limited provides related party disclosures entailing the parent entity, controlled entities, associates and joint ventures, director related entries and key management personnel (Crown Limited 2014, pg.122). 10. Amortization of Intangible Assets Crown Limited annual report discloses the amortization of intangible assets as well as the methods used in the process (Crown Limited 2014, pg.111). In 2013, the amortization is calculated by lessening cost or rather the gross carrying amount of the intangible asset to the accumulated amortization and impairment values. Conclusion From the discussion above, Crown Limited is seen to have made significant efforts to adhere tom most of the stipulations put forth except for the off-balance sheet arrangements and new standards where the AASB 10, 11 and 13 have not been yet adopted till the 1 July 2013. Given that ASIC has made it a mandatory for all listed entities to adhere to the new proposals, Crown Limited’s directors should ensure that the firm is able to disclose important information in especially in regards to the drivers of financial performance as well as its financial position for immediate use of the potential investors. References List Crown Limited.2014. 2013 annual report. Retrieved from http://www.crownresorts.com.au/CrownResorts/files/f1/f1cfa710-8bea-4a2b-86b6-a3fa55277614.pdf Read More