Audit Committee Institute...© 2020 KPMG, an Australian partnership and a member firm of the KPMG...

AuditCommitteeInstituteThe impacts of COVID-19 on corporate reporting and expectations of directors for 30 June 2020

11 June 2020

2© 2020 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Document Classification: KPMG Confidential

Liability limited by a scheme approved under Professional Standards Legislation.

The road through and out

COVID-19

© 2020 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Document Classification: KPMG Public




Today’s agenda

Financial reporting developments

Martin McGrath & Patricia Stebbens

Suspension of insolvent trading laws & safe harbour

Gayle Dickerson

Good practice business reporting

Glenn Austin





Directors’ role• What information is available at this time?

• Are estimates, assumptions and statements reasonable and supportable?

• Have we challenged them appropriately?

• Do we have good governance at the Board level to sign-off?

ASIC COVID-19 implications for financial reporting and audit: FAQs





Impairment of assets

30 June 2020 Financial statements issued

Impairment testing performed

If conditions change, entities may have tore-perform impairment testing considering

the new information

Adjusting subsequent events provide evidence of conditions which existed at 30 June 2020.

Non-adjusting events are disclosed when they are material

Impairment timeline





Impairment of assets

Forecast cash flows – assumptions?

Discount rate impacts

Fair-value-less-costs-of-

disposalValue-in-use





Going concernNo disclosures

Disclose judgements made

Disclose uncertaintiesBasis other than going concern

No uncertainty

• Disruptions faced

• Changes in demand

• Liquidity management

• Judgements

No material uncertainties BUT

judgementinvolved

• Cash flow forecasts

• Liquidity management

• Additional financing

Material uncertainties

• Selection of accounting policies consistent with Australian Accounting Standards

Going concern assumption not

appropriate





Temporary changes to insolvency lawThe Australian Federal Government has now passed temporary amendments to insolvency and corporations laws in light of the challenges COVID-19 poses to many otherwise profitable and viable businesses.

Relief from personal liability for directors trading while insolvent for a six month period. Directors need to still act honestly, not negligently and in the best interests of creditors where solvency is an issue

Increased threshold for statutory demands from $2,000 to $20,000 and increased timeframe for compliance from 21 days to six months for companies to respond to statutory demands

Discretion for the Federal Treasurer to amend the Corporations Act 2001 (the Act) to relieve companies from certain obligations contained in the Act.





Two safe harboursTemporary suspension of insolvent trading law “no get of Jail for free card”

• Relief from insolvent trading does not extend to the company – the company remains liablefor any debts incurred.

• Does not apply to dishonest behaviour (criminal liability still applies)

• May impact counterparty credit risk assessment

• Heightened risk of voidable transactions such preference payment recoveries

Safe Harbour law (2017) still intact…..and principles still apply

• Honest and genuine attempt to save business

• Realistic opportunity for a better outcome (than insolvency)

• Experienced advice obtained

• Best practice approach – no reason not to use now





Safe Harbour: Better Outcome Conceptual Framework

Time

Perf

orm

ance

/Val

ue

$

Start to suspect

(insolvency (VoluntaryAdministration)

Underperformance

Distress

Solvent Restructure (better outcome achieved for the company)

Insolvency

Insolvent Restructure (better outcome achieved for creditors)

(insolvency (Liquidation))

Safe Harbour

No longer a better outcome





Financial instruments considerationsDisclosures

• Liquidity disclosures• Covenant breaches • Hedging

Debt covenant breaches

• Waivers required prior to balance date

Modifications

• Short term extension terms minimal impacts

• Significant modification complex to account for

Doubtful Debts

• Default debts considered separately

• Past will not be an appropriate indicator of future

• Segment population appropriately• Judgements involved

Hedging

• Is forecast transaction still likely to occur?





Leases

Rent concessions

• Rent waiver

• Rent reduction

• Rent deferral

• Extension of term

Right-of-use asset

• Impairment

IASB Board exemption for lessees

Lessors: no exemption





Provisions: restructuring and employee benefits

Formal plan Valid expectation in those affected

Recognise restructuring

provision‒ Parts of business impacted

‒ Locations affected‒ Location, function

and # of redundancies

‒ Timing

Termination benefits recognised at earlier of:• Recognition of restructuring provision, and• Entity can no longer withdraw offer





Other financial reporting considerations

1

2

3

4

5

Fair values

Accounting for government stimulus initiatives

Events after reporting date

Control environment

Audit





Reporting – Audit opinions & TimingGoing concern disclosures and audit opinions

• Key audit matter – “close call”

• Emphasis of matter (EOM) – material uncertainties all disclosed

Deadlines for 30 June 2020

• ASIC extended timing of reporting obligation by one month

• ASX monitoring challenges

• Not a qualification

• Financial statements still true and fair





Disclosures

• Consistency of disclosures between OFR and financial statements

• Going concern assumption – uncertainties and judgements

• Liquidity risk management

Pre-COVID-19 RecoveryFuture state

COVID-19





Non-IFRS profit measures removing COVIDWithin the financial report

It may be possible to quantify and disclose in the notes to the financial statements specific significant items within the result that arose solely due to the impact of the COVID-19 pandemic.

ASIC COVID-19 implications for financial reporting and audit: FAQs

Outside the financial report (includes OFR)

• Is it misleading?

• Is greater prominence given to non-IFRS measure than IFRS financial information?

• Have we explained and reconciled to the IFRS measure?

• Is it unbiased and not used to avoid presenting ‘bad news’?





Drivers of change in corporate reporting at June 2020Organisations are being asked by key stakeholders to report on more and more….

Corporate Reporting – A KPMG review of corporate reporting trends in the year to 30 June 2019

Megatrends Investors

Regulators Society

Sustainable development goals

Modem slavery / Human rights

Task force on climate related financial disclosures

And now COVID-19

• Public trust (Edelman)

• Business resilience AGMs

• Social media (‘fake news’)

• Litigation

26% of all FUM are screened for ESG

Australian investors sign global letter of support for <IR> adoption

Larry Fink Blackrock CEO



https://assets.kpmg/content/dam/kpmg/au/pdf/2019/asx-200-2019-corporate-reporting-trends.pdf



“A listed entity should disclose its process to verify the integrity of any periodic corporate reports it releases to the market that is not audited or reviewed by an external auditor.”

ASX Corporate Governance Principles and Recommendations 4.3

Corporate Reporting considerations – 30 June 2020

Time to reconsider

what is important to

report ??

Present volume and resources to

produce reports

COVID 19 Amplifies the need for value based and purposeful reporting

Consider disclosures in the context of an Entity’s:

• Purpose, Mission and Vision

• Strategy & value creation process

• Current performance, and future prospects

• Impact on all stakeholders

Stakeholder & regulatory reporting burden





Not-for-profit entities• Going concern assessment

• Government assistance

– gross income and gross expenses

– different to for-profit (where choice of net presentation)

• Grant conditions – still able to meet?

• Impact of COVID-19 on activities – activities still meeting your purpose?





On the horizonAustralian financial reporting framework

Key features include, for financial years beginning 1 July 2021:

• Ability to prepare special purpose financial statements for certain for-profit entities no longer available

• New GPFS-Tier 2 Simplified Disclosures standard replaces GPFS-Tier 2 Reduced Disclosure Regime

For more information, see our Reporting Update and webpage:

Presentation of financial statements

New IFRS® Standard proposed that would replace IAS 1 Presentation of Financial Statements.

Key proposals include:

• New income statement structure.

• Analysis of operating expenses: “Unusual items” and improved disaggregation.

• Use of “management performance measures”

For more information, see our New on the Horizon publication.

Comment period closes 30 September 2020.

www.kpmg.com/au/gpfs



https://home.kpmg/au/en/home/insights/2020/04/0ru-006-farewell-spfs-welcome-simplified-disclosures.html

https://home.kpmg/content/dam/kpmg/xx/pdf/2020/04/noth-proposals-financial-statements-2020.pdf

https://home.kpmg/content/dam/kpmg/xx/pdf/2020/04/noth-proposals-financial-statements-2020.pdf

https://home.kpmg/xx/en/home/insights/2020/01/presentation-disclosures-primary-financial-statements-exposure-draft.html

Thank you

KPMG.com.au

© 2020 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMGInternational Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.


The information contained in this document is of a general nature and is not intended to address the objectives, financial situation or needs of any particular individual or entity. It is provided for information purposes only and does not constitute, nor should it be regarded in any manner whatsoever, as advice and is not intended to influence a person in making a decision, including, if applicable, in relation to any financial product or an interest in a financial product. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

To the extent permissible by law, KPMG and its associated entities shall not be liable for any errors, omissions, defects or misrepresentations in the information or for any loss or damage suffered by persons who use or rely on such information (including for reasons of negligence, negligent misstatement or otherwise).

Designed by Australian Creative Services | 512691346 (Wrike)

www.kpmg.com.au

https://www.youtube.com/user/kpmgaustralia

https://www.youtube.com/user/kpmgaustralia

https://www.facebook.com/KPMGinAustraliaGraduatesandStudents?fref=ts

https://www.facebook.com/KPMGinAustraliaGraduatesandStudents?fref=ts

https://instagram.com/kpmgaustralia/

https://instagram.com/kpmgaustralia/

https://www.linkedin.com/company/kpmg-australia?trk=hb_tab_compy_id_2639873

https://www.linkedin.com/company/kpmg-australia?trk=hb_tab_compy_id_2639873

https://twitter.com/kpmgaustralia

https://twitter.com/kpmgaustralia

Date post:	03-Jul-2020
Category:	Documents
Upload:	others
View:	2 times
Download:	0 times

Audit Committee Institute...© 2020 KPMG, an Australian partnership and a member firm of the KPMG...

Documents