Executives in listed companies have been warned to put “more meat on the bone”, as they approach the first reporting season after new ASIC guidelines came into play.
In March, the regulator issued Regulatory Guide 247, which warned companies to make the reports more detailed to guide investors and other stakeholders.
The guide focused on lifting the standard of disclosure in listed entities’ operating and financial reviews (OFR) and ensuring OFRs contain the information shareholders reasonably require to make an informed assessment of business strategies and future prospects for the entity reported on.
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“I think ASIC was concerned that there wasn’t enough narrative in annual reports, and statements about a company’s finances didn’t clearly explain the ‘why’,” Tim Sydenham, an audit partner at accountancy BDO, tells LeadingCompany.
“They were seeing a lot of generic disclosures, which didn’t detail the material risks. So the whole guide really focused on making the disclosures relevant to users, and trying to get away from a boiler-plate mentality.”
CFOs often have limited time to prepare the accounts, and the issue hasn’t been clear in the past as ASIC allowed companies to not disclose information that would result in “unreasonable prejudice” to their company.
ASIC could issue companies which don’t follow the new ASIC guidelines with a request to further explain their accounts, which needless to say is an embarrassing prospect for their executives, and could raise questions about what they’re trying to hide, Sydenham says.
At the larger end of the ASX, most companies report well, he adds.
But since the global financial crisis, many smaller companies have seen jobs done by three people now done by two, which has put pressure on the quality of their reporting.
This means companies have to make sure they provide reasons for their results.
“Rather than simply saying, “sales increased by 10%”, explain what you did to achieve that. And if it didn’t reach your goals, say why.
“It’s really about putting more meat on the bone.”