Some AFS licensees may face difficulty in complying with their financial requirements because intangible assets (excluding deferred tax assets) are not included in satisfying such requirements. Companies should apply appropriate experience and expertise, particularly in more difficult and complex areas such as accounting estimates (including impairment of non-financial assets), accounting policies (such as revenue recognition) and taxation. the net tangible asset capital requirements will be increased; and more of the NTA will have to be held in cash. Although ASIC announced this concession as a temporary one, it is likely that it will give further consideration to the matter. ASIC has highlighted key focus areas for financial reporting by companies for years ending 31 December 2020. Net tangible assets (4) The licensee must hold at all times NTA of: (a) if subsection (5) applies or the licensee does not operate any registered schemes or IPDSs—at least the greatest of: ... 2010 that impose financial requirements, taking into account any waiver by ASIC. When can you raise funds without a disclosure document? Because the financial condition requirements are on an ‘at all time’ basis, compliance needs to be considered from the commencement of the financial year to which the standard first applied. It should be noted that: Check business name details are up to date, Request an alternative registration period for business name, Steps to transfer a business name to a new owner, Steps to register a business name with a transfer number, ASIC-initiated cancellation of business name. I'm a company officeholder, what are my registration obligations? For the purposes of the no-action position, the financial resource requirements are: Under s 912A(1)(d) of the Corporations Act 2001 (the Act), an AFS licensee is required to maintain adequate resources, including financial resources, to provide the financial services the AFS licensee is authorised to provide under the terms of its AFS licence. Information and guides to help to start and manage your business or company. Many Australian Financial Services (AFS) Licensees are subject to financial condition requirements that may be affected by the new standards. ASIC will take no regulatory action in relation to a breach of a financial resource requirement (defined below) by an AFS licensee if the breach was caused by the AFS licensee’s inability to use a right-of-use asset to satisfy the financial resource requirement and that inability arises from recent changes to the accounting treatment of lease assets as a result of AASB 16. The Australian Securities and Investments Commission (ASIC) today announces that it has revoked its suspension of the Australian financial services (AFS) licence of Sydney-based Ausfunds Management Limited. It is important for directors and auditors to ensure: A company’s weighted average cost of capital may be relevant in determining recoverable amount using discounted cash flows. regulatory requirements that ASIC highlights. 8 Lodging prospectuses and other disclosure documents. The Henry Morgan fund floated on the sharemarket in 2016 with a … The proposal provides a solution to an impediment that some AFS licensees face in … The no-action position outlined below applies to Australian financial services (AFS) licensees. The Australian Securities and Investments Commission (ASIC) has stated that it considers the right of use (ROU) assets arising from the application of AASB 16. More detailed information on focus areas for 31 December 2019 is provided in the following attachment to this media release.Â. discount rates and other key assumptions are reasonable and supportable; cash generating units (CGUs) are not identified at too high a level, including where cash inflows for individual assets are not largely independent;  and. This is the case even if ASIC were to subsequently change a licensee’s conditions to allow right-of-use assets to be counted.  Similar issues may arise with contract assets recognised in accordance with the revenue standard. expensing start-up, training, relocation and research costs; ensuring that any amounts deferred meet the requirements concerning reliable measurement; and. The ASX Group's activities span primary and secondary market services, including capital formation and hedging, trading and price discovery (Australian Securities Exchange) central counter party risk transfer (ASX Clearing Corporation); and securities settlement for both the equities and fixed income markets (ASX Settlement Corporation). Although ASIC announced this concession as a temporary one, it is likely that it will give further consideration to the matter. ASIC or ASX Reporting. This is also the second year of application of the following standards that applied from years commencing 1 January 2018:Â. Full-year reports at 31 December 2019 must comply with a new accounting standard on lease accounting that requires lessees to recognise lease liabilities and a right-of-use asset for all leases, not just leases formerly classified as finance leases. Net tangible assets are calculated similar to a company's stockholders' equity. Further information can be found in ASIC media release Companies need to respond to major new accounting standards (refer: 16-442MR). “Higher stamping (selling) fees for LICs and LITs are correlated with worse investment returns and bigger discounts to NTA [net tangible assets],” ASIC senior markets specialist David Dworjanyn wrote to ASIC colleagues and Treasury on August 5. Other areas of focus on asset values include: In applying the new revenue accounting standard, directors and auditors should review an entity’s revenue recognition policies to ensure that revenue is recognised in accordance with the substance of the underlying transactions. Yes. During the initial phase-in period, which commences on 31 January next year, an issuer's NTA will need to be the higher of $500,000 and 5% of its average revenue. A ‘no-action’ position does not express ASIC’s view about whether the relevant conduct contravenes the Act, or whether ASIC will intervene in an action by a third party in relation to the conduct. If not, why not? Following some high-profile collapses of responsible entities of managed investment schemes in the wake of the global financial crisis, ASIC has been reviewing the financial requirements which apply to responsible entities. The RG166 provides a table summarising the financial requirements for all categories of AFS licence holders, breaking down the requirements in the base level requirements and extending to additional requirements such as NTA (net tangible assets), SLF (surplus liquid funds) or other ASLF (adjusted surplus funds) requirements. development costs meet the six strict tests for deferral. Withdrawal rights Unlisted property schemes often have limited or no withdrawal rights. This is also the second full year that new accounting standards on revenue recognition and financial instrument values (including hedge accounting and loan loss provisioning) have applied.Â. I'm a company officeholder, what are my registration obligations? Our work will cover how audit committees and directors fulfilled their role in ensuring the quality of the financial reporting and supporting the audit. Companies affected by the new insurance standard and changes to the conceptual framework need to ensure appropriate disclosures on the future impact of those new requirements in the notes to 31 December 2019 financial reports. with net assets of more than $50 million (excluding banks) can no longer be included as an adjusted asset. Particularly where prior period cash flow projections have not been met, careful consideration should be given to whether current assumptions are reasonable and supportable, discounted cash flows are not used to determine fair value less costs of disposal where forecasts and assumptions are not reasonable and supportable, cash flows used are matched to carrying values of all assets that generate those cash flows, including inventories, receivables and tax balances. Introduction. Directors are primarily responsible for the quality of the financial report. Responsible entities must carefully consider these and ensure that disclosure is adequate. 9. the valuation of financial instruments, particularly where values are not based on quoted prices or observable market data. Nor does it prevent a court from holding that particular conduct infringes the relevant legislation. Lease liabilities would be included in the ‘net tangible asset’ calculation, but intangible assets, such as the related ROU assets, would not be counted. This includes ensuring that management produces quality financial information on a timely basis. Leases. Download RG 166 (PDF 1.5MB) Estimates and accounting policy judgements. AASB 15 Revenue from Contracts with Customers (applies from years commencing 1 January 2018); 3. For example, a net tangible assets requirement would include lease liabilities, but intangible assets such as a lease right-of-use asset would not be counted in meeting that requirement. These new accounting standards may significantly affect how and when revenue can be recognised, the values of financial instruments (including loan provisioning and hedge accounting), reported assets and liabilities relating to leases, accounting by insurance companies, and the general identification and recognition of assets, liabilities, income and expenses.  The standards also introduce new disclosure requirements. The introduction of AASB 16 Leases has raised questions regarding the appropriate treatment of right of use lease assets in an entity’s NTA calculation. Your NTA will determine your maximum revenue (MR) for the forthcoming year. ASIC plans to consult in the 2020-21 financial year on proposals to change the financial resource requirements to enable an AFS licensee to include a right-of-use lease asset when calculating whether it meets its financial resource requirements. For example, the new conceptual framework contains new definition and recognition criteria for assets, liabilities, income and expenses that apply where they are not inconsistent with a specific requirement of an accounting standard. Disclosures regarding sources of estimation uncertainty and significant judgements in applying accounting policies are important to allow users of the financial report to assess the reported financial position and performance of an entity. ASIC has issued Consultation Paper 336 Financial requirements: Treatment of lease assets (CP 336). Companies must have appropriate processes, records and analysis to support information in the financial report. AASB 16 offers no guidance as to whether recognised ROU assets are tangible or intangible assets… Directors and auditors of AFS licensees should report any breaches of financial condition requirements to ASIC as required by the Corporations Act 2001. In 2014, the requirement will be $1million and 10% of revenue. Net tangible assets (4) Unless subsection (5) applies, the licensee must hold at all times NTA of: (a) if the licensee is not an incidental provider – at least the greater of: (i) $10 million; or (ii) 10% of average revenue; and (b) if the licensee is an incidental provider – at least the greater of: (i) $150,000; or Directors and auditors of AFS licensees should report any breaches of financial condition requirements to ASIC as required by the Corporations Act 2001. a foreign exchange dealer, who can choose between ASLF and capital requirements: item 20 of PF 209; a retail OTC derivative issuer, who must comply with an NTA requirement under ASIC Class Order [CO 12/752] –. What disclosure documents do you need to give potential investors when raising funds? Net tangible assets (4) The licensee must hold at all times NTA of: (a) if subsection (5) applies or the licensee does not operate any registered schemes or IPDSs—at least the greatest of: ... 2010 that impose financial requirements, taking into account any waiver by ASIC. It is issued on 7 July 2020 and applies until further notice. AASB 17 Insurance Contracts (applies from years commencing 1 January 2021); and 5. Information about applying for and maintaining your licence or professional registration. ASIC’s proposal will allow AFS licensees to include a right-of-use lease asset in their calculation of net tangible assets, adjusted surplus liquid funds and surplus liquid funds. ASIC’s concern is also an example of market scrutiny of unlisted asset valuations. ASIC has highlighted key focus areas for financial reporting by companies for years ending 31 December 2020. We anticipate completing this work by 30 June 2020. For the purposes of applying certain financial resource requirements to an AFS licence, the right-of-use asset may be an intangible asset. ASIC had cancelled the REs AFSL on the basis that the RE had failed to maintain the condition of its licence requiring the RE to maintain the required level of net tangible assets (NTA). REs can continue to deduct subordinated loan amounts (approved by ASIC) from their liabilities and add eligible undertakings from banks to their assets for the purposes of calculating NTA. As the impact of COVID-19 continues, the areas identified remain similar to those at 30 June 2020 and are complemented by guidance provided in frequently asked questions on the ASIC … ASIC’s concern is also an example of market scrutiny of unlisted asset valuations. ASIC media releases are point-in-time statements. The ‘Assets Test’ The ASX Listing Rules provide that to satisfy the “assets test”, a company must satisfy criteria in respect of each of the following: net tangible assets/market capitalisation liquid assets working capital financial statements and audit report. Net tangible assets The NTA calculation helps investors understand the value of the assets upon which the value of their unit is determined”. (d) a net tangible assets (NTA) requirement similar to that which is proposed to apply to responsible entities. The policy principles that underpin ASIC’s financial resource requirements are set out in ASIC Regulatory Guide 166 Licensing: Financial requirements (RG 166). Small business resources in other languages, Professional standards for financial advisers, Appointing and ceasing an AFS authorised representative, Applying for and managing your credit licence, Varying or cancelling your credit licence, Tips for applying for auditor registration, Applying for auditor or authorised audit company registration, Your ongoing obligations as a registered company auditor, Changing your auditor registration details, Self-managed superannuation fund (SMSF) auditors, Updating your details and submitting requests to ASIC, Your ongoing obligations as an SMSF auditor, Applying for and managing your liquidator registration, Your ongoing obligations as a registered liquidator, Changing or cancelling your liquidator registration, Registered liquidator transactions on the ASIC Regulatory Portal, Licensed and exempt clearing and settlement facilities, COVID-19 information – Managed investment schemes, Competition in the funds management industry, Superannuation guidance, relief and legislative instruments, Insolvency for investors and shareholders, Director oversight of financials and audit, Corporate actions involving share capital, Changes to how you lodge fundraising and corporate finance documents. Share and print this article. AASB 16 Leases (applies from years commencing 1 January 2019); AASB 17 Insurance Contracts (applies from years commencing 1 January 2021); and. AASB 9 Financial Instruments (applies from years commencing 1 January 2018); 2. We will review the governance processes over financial reporting of several companies, generally where reported net assets and profits were materially changed following our inquiries on financial reports for recent reporting periods. ASIC’s proposal will allow AFS licensees to include a right-of-use lease asset in their calculation of net tangible assets, adjusted surplus liquid funds and surplus liquid funds. The new standards can have real business impacts (e.g, compliance with debt covenants or regulatory financial condition requirements, tax liabilities, dividend paying capacity, and remuneration schemes) as well as the need to implement new systems and processes. Advertisement with net assets of more than $50 million (excluding banks) can no longer be included as an adjusted asset. An ‘investment overview’ is strongly recommended by ASIC in order to ensure that a PDS is presented in a clear, concise and effective manner. Information and guides to help to start and manage your business or company. This includes calculating the net tangible assets, which the regulations refer to as adjusted assets less adjusted liabilities. 1. In brief. These requirements are specified in AFS licences, based on PF 209 and various ASIC legislative instruments. There are certain requirements that AFSL holders need to meet to prove to the Australian Securities and Investments Commission (ASIC) that their solvency is assured. there is a proper understanding of both the tax and accounting treatments, and how differences between the two affect tax assets, liabilities and expenses; the impact of any recent changes in legislation are considered; and. 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