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Financial Reporting Issues: ASIC Findings and Mining Asset Impairment Challenges
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In the current time period in most of developed and developing nation's main emphasis is given on improving reporting standards. In the current report detail discussion is carried out on the ASIC and its financial reporting surveillance program. Apart from this, in the report key issues in respect to mining impairment are discussed in detail. Along with this, assets that are impaired up to specific value in context of financial reporting surveillance program are discussed briefly. At end of the report, five issues that need to be consider in respect to valuation of assets are discussed briefly. At last conclusion section is formed in the report.
(a) Role of ASIC in relation to financial reporting surveillance program and ASIC findings from review of reports
ASIC is known as the regulatory body of the stock market in the Australia. Role that ASIC play in relation to financial reporting surveillance program is given below.
ASIC is playing an important role in evaluating firm's financial statements and reports. ASIC is responsible for surveillance and doing investigation on the business firm (Huang and Austin, 2011). Apart from this mentioned institute also conduct the audit under this corporation act. It can be said that ASIC is playing an effective role in implementation of the financial reporting surveillance program because it is doing audit of the firm financial statements time to time and ensured that all things are presented to the investors in the systematic manner.
ASIC through its programs educate individuals which are the chartered accountant of any company. Mentioned entity is educated about which accounting and reporting must be done. Thus, it can be said that through financial reporting surveillance program ASIC ensured that quality of reporting and accounting is improving on year on year's basis in respect to the business firms.
ASIC also ensure that auditors of the business firms are working independently and there is no pressure on same (Buddelmeyer, Jensen and Webster, 2010). It is also ensured through these programs that audit quality of firms is excellent. All these things help ASIC in ascertaining that correct facts and figures are available to the investors in the reports.
Findings of ASIC from financial reporting surveillance program
In the research that is conducted by the ASIC it was identified that assets that comes in the category of cash generating units (CGU) were not valued at fair value. These assets were valued at high price despite cash inflows were largely independent. Cash flows were revealed incorrectly to support enhancement in value of asset.
In case of some firms liabilities were deducted from carrying value of cash generating units (CGU) (Birt, Rankin and Song, 2013).
Assumptions that were formed on the basis of analysis of external sources are not assessed for consistency and relevance.
The forecast that were prepared by the business firms were not appropriate in comparison to previous year cash flows.
Reasonable allocation of assets was not done to cash generating units by the business firms.
Most of the business firms use discounted cash flow model to measure the fair value of the assets. Usually it is observed that assets are valued in different manner by different approaches. In case of each method different value of asset is received as fair value. Due to single use of the discounted cash flow model it is doubtful that firms valued their assets in systematic way and at accurate value. It must be noted that in the discounted cash flow model only management inputs are taken in to account. Thus, inputs may be wrong or it is possible that management at its own discretion manipulate figures to show higher value of assets. Thus, values computed on the basis of DCF model is doubtful.
(b) Key issues and complexity of impairment of mining assets
There are number of issues and complexity that are associated with the impairment of mining assets. Some of them are explained below.
Estimation of cash flows: It is the one of the difficult task to estimate the cash flows for the discounted cash flow model. This is because it is the difficult to estimate growth rate that may happened in the future time period. Economic conditions are uncertain and due to this reason it is very difficult task to estimate cash flows for the future time period.
Discount rate: Estimation of accurate discount rate is another challenging task for the business firm (Taylor and et.al., 2012). In case debt is take at flexible interest rate by the business firm it is very difficult to estimate the reliable rate at which cash flows can be discounted by the business firm. Thus, it is another issue that is associated with impairment of asset.
Foreign currency cash flows: Cash flows that can be generated from the foreign also need to be estimated in calculation of impartment. By estimating foreign currency exchange rate cash flows are converted in to domestic value (16-294MR Evolution Mining writes down Pajingo mine, 2017). One cannot estimate accurate value of exchange rate because same is heavily affected by the changes that happened in the economic condition of nation and global economy. Thus, it is major issue associated with impairment of mining assets.
(c ) Assets impaired and value to written down
Relevant non-current assets were impaired by the business firm same were valued at 77330. Goodwill are impaired at 35270. In order to impair non-current assets estimate of recoverable amount from CGU was made by the business firm. Each and every mine that business firm have is assumed as separate unit. Due to decline in the gold price in international market value of mines reduced substantially. In the FY2016 Pajingo asset was impaired to specific value. Entire details are obtained from the annual report of 9th disclosure critical estimates, judgments and errors.
(d) Five issued that need to be consider
Inappropriate assumptions: Mentioned issue is relevant to the Adelaide Brighton Limited because if wrong assumptions are made projection will also be wrong. Thus, it is the one of the main issue that need to be consider.
Inaccurate cash flows: Mentioned issue is relevant to the Adelaide Brighton Limited and it is considered as one of main issue because if cash flows are wrong then assets will be valued wrong (Impairment of non-financial assets: Materials for directors, 2017).
Mismatch in value of assets and cash flows: Sometimes assets and cash flows in terms of value does not match to each other. Thus, according to value of assets cash flows projected does not seems to be reasonable. It is another big issue that need consideration by Adelaide Brighton Limited.
Process of assessing impairment: If process of impairment will not be appropriate at Adelaide Brighton Limited then its balance sheet will not reflect accurate financial position. It is the one of the main issue.
Use of discount rates for different CGU: Adelaide Brighton Limited sometimes use same discount rate for each CGU which is not possible. Practice of same thing lead to computation of wrong value of asset.
On the basis of above discussion it is concluded that it is very important to use appropriate approach for impairment of asset. This is because if appropriate approach will be used then in that case assets can be valued at fair price and true financial position will be reflected by the balance sheet. It is recommended that management must use varied models to do valuation of the asset. On the basis of output received from varied assets valuation model final decision must be made by the managers.;