Reference no: EM132984048
James Shipton, the chairperson of the Australian Securities and Investments Commission (ASIC), argued in an interview, "in the current environment, the quality of financial reports and related disclosures is more important than ever for investors and to maintain confident and informed markets." Also, he added, "entities with businesses adversely affected by the COVID-19 pandemic should focus on the reporting of asset values and financial position. Investors will expect clear disclosure about the impacts on an entity's businesses, any risks and uncertainties, key assumptions, management strategies and future prospects." In line with the chairperson's arguments, the ASIC requires the entities and industries adversely affected by the COVID-19 pandemic to focus on: asset values, provisions, solvency and going concern assessments, events occurring after year-end and before completing the financial report, and disclosures in the financial report and operating and financial review (OFR) for financial reporting. More specifically, the ASIC announces that it will review the financial reports of about 200 larger listed entities and other public interest entities as at 30 June 2020 and require entities to apply more appropriate experience and expertise in the reporting and audit process, particularly in more difficult and complex areas, such as asset values and other estimates.
Required:
Problem (a) Describe the most possible reasons that the ASIC requires companies affected by COVID-19 to provide more detailed and adequate information on some focus areas, such as asset values, provisions, solvency and going concern assessments, events occurring after year-end and before completing the financial report, disclosures in the financial report and Operating and Financial Review (OFR).
Problem (b) Some people argue that the disclosure requirement (or regulation) above may not be necessary for financial reporting even under the COVID-19 pandemic. Explain their reasons from the free-market perspective.