Audit Committee Institute...© 2020 KPMG, an Australian partnership and a member firm of the KPMG...
Transcript of 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
Liability limited by a scheme approved under Professional Standards Legislation.
3© 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.
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
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
4© 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.
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
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
5© 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.
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
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
6© 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.
Impairment of assets
Forecast cash flows – assumptions?
Discount rate impacts
Fair-value-less-costs-of-
disposalValue-in-use
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
7© 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.
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
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
8© 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.
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.
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
9© 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.
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
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
10© 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.
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
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
11© 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.
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?
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
12© 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.
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
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
13© 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.
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
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
14© 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.
Other financial reporting considerations
1
2
3
4
5
Fair values
Accounting for government stimulus initiatives
Events after reporting date
Control environment
Audit
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
15© 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.
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
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
16© 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.
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
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
17© 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.
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’?
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
18© 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.
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
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
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 Confidential
Liability limited by a scheme approved under Professional Standards Legislation.
“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
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
20© 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.
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?
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
21© 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.
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
© 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
Liability limited by a scheme approved under Professional Standards Legislation.
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.
Liability limited by a scheme approved under Professional Standards Legislation.
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)