ASIC cracks down on LPI Holdings for non-consolidated reports
LPI (Australia) Holdings was forced to revise its financial reports for not consolidating an overseas entity after ASIC announced an expanded audit and financial surveillance agenda.
LPI (Australia) Holdings has lodged a revised financial report for the year ended 31 December 2023 after ASIC raised concerns it had fallen short of accounting standards consolidation requirements.
LPI’s financial report failed to consolidate a Taiwanese entity in which it held a 100 per cent holding, thereby excluding consolidated assets worth $57 million, liabilities worth $25 million, revenue of $100 million, and $96 million in expenses.
In ASIC’s opinion, this meant the financial report did not include all relevant information regarding LPI’s financial position. The failure was highlighted by ASIC as part of its proactive financial reporting and audit surveillance program.
Since integrating financial reporting and audit surveillance into one program in 2022, the watchdog has undertaken substantially fewer audit reviews (from almost 60 in the last financial year before the pandemic, compared with 15 in 2022–2023).
Doug Niven, ASIC’s former chief accountant and now chairman of the Auditing and Assurance Standards Board, has been outspoken in condemning the new approach and the broader reshuffle that surrounded it.
The new approach means that ASIC will generally audit where issues are identified with financial reports, given the “strong correlation” between the two.
Niven said several potential drawbacks of this approach, including his belief that certain material misstatements are often not capable of being identified by reading a financial report.
“Where a regulator conducts a ‘desk review’ of a financial report, they are not reperforming the audit. It can be difficult or impossible to identify the risk of a material misstatement from reviewing the financial report,” Niven said.
“A regulator may also be able to identify material misstatements in a financial report from more detailed information on the audit file.”
He also said that audit surveillance and financial reporting had already been integrated for many years, and that audit file reviews were “predominantly a subset of the financial reports selected for review.”
ASIC commissioner Kate O’Rourke last week announced that the surveillance program had been redesigned to look beyond surfaced issues to “root causes,” including, governance, risk, culture, and independence.
ASIC also announced the program would be expanded to include previously grandfathered companies and registrable superannuation entities. It will also conduct a review of audit compliance with ethical and independence standards.
O’Rourke commented on the findings of ASIC’s most recent surveillance round, noting concerns with financial reporting and auditing.
On the former, O’Rourke said that among reviewed reports, there had often been insufficient disclosures regarding material business risks in operating and financial reviews.
“Many entities still need to significantly improve the information they report in the OFR for the benefit of investors and other users. Entities that are of particular risk are those that are newly listed, regularly raise funds, or have more complex business models,” she said.
Impairment of non-financial assets and the audit of revenue and receivables continued to make up the lion’s share of audit findings in the 2022–2023 period.
A combined $215 million in adjustments were made following ASIC’s financial reporting and audit surveillance.
O’Rourke said ASIC’s audit findings were “not unique,” noting that international regulators had surfaced similar compliance trends at the International Forum of Independent Audit Regulators (IFIAR), of which ASIC is a member.
“Similar to ASIC, IFIAR noted the area with the highest level of findings was accounting estimates, including fair value measurement followed by internal control testing and adequacy of financial report presentation and disclosure,” O’Rourke said.
“Both ASIC and IFIAR encourage audit firms to make continued efforts to enhance audit quality to reduce the number of audits with findings.”
