Data#3 Limited (Data3) has announced the restatement of its full year 2023 and half year 2022 financial reports following a review initiated as part of ASIC’s new financial reporting and audit surveillance program.
ASIC raised concerns with Data3 regarding its revenue accounting policy in November 2023. Data3 subsequently changed its accounting policy to recognise revenue from contracts for the sale of some software products as an agent rather than a principal (under Australian Accounting Standard AASB 15 Revenue from Contracts with Customers). Accordingly, only net earnings on those sales are recognised as revenue.
The restatement (arising from the change in accounting policy) resulted in a $1.67 billion decrease to revenue for the year ended 30 June 2023 and a $761 million decrease to revenue for the half year to 31 December 2022. There is no impact to profit before tax due to the offsetting expense being eliminated when the revenue is no longer recognised.
Under its new financial reporting and audit surveillance program, ASIC targets financial reports for review using risk-based criteria. These include where ASIC identifies potential issues in revenue recognition or asset valuation.
ASIC reminds preparers of financial reports that consideration should be given to identifying whether revenue (performance obligations) should be recognised as a principal or as an agent. When an entity acts as an agent and recognises all the revenue in relation to a product or service it on-sells, it can create a misleading impression about the size of a business and the potential influence it has on its own profitability.
Background
ASIC’s financial reporting and audit surveillance program aims to improve the quality of financial reporting and to ensure financial reports have been prepared in accordance with the law, supporting investor confidence and the integrity of Australia’s capital markets.
ASIC has adopted a new integrated approach to conducting financial reporting and audit surveillances, which focuses on the entire financial reporting chain. In addition to auditors, it makes other stakeholders (like financial report preparers and audit committees) more accountable for the quality of the financial report and audit.
ASIC conducts regular reviews on a risk-basis of the financial reports of selected listed companies and other significant public interest entities to monitor compliance with the Corporations Act 2001 and Australian Accounting Standards. ASIC alerts the market prior to each reporting season about current topics or issues that will be the focus of the reviews.