As large proprietary entities prepare for the 30 June 2025 reporting season, audit scrutiny is intensifying across several high-risk areas. Economic uncertainty, evolving regulatory expectations, and increased stakeholder demand for transparency mean that audit readiness is more critical than ever. In this article, our Audit Partner Navin Prasad outlines the key areas of focus for auditors and regulators this year, and offers practical insights for management teams navigating the audit process.

1. Going Concern & Solvency Assessments

With ongoing macroeconomic challenges – including interest rate pressures, cost inflation, and global supply chain disruptions – auditors must rigorously evaluate going concern assumptions.

Key considerations include:

• Cash flow forecasts covering at least 12 months from the audit report date
• Sensitivity analysis under downside scenarios
• Management’s funding plans and debt covenant compliance
• Adequate disclosure of material uncertainties (if applicable)

2. Impairment Testing for Non-Financial Assets

Entities with significant goodwill, intangibles, or long-lived assets must ensure impairment assessments reflect updated market conditions.

Auditors will focus on:

• Reasonableness of future cash flow assumptions, including growth rates and margins
• Application of market-based discount rates
• Consistency with board-approved budgets
• Adequacy of sensitivity disclosures in accordance with AASB 136

Sectors such as retail, construction, and technology are particularly at risk of asset write-downs in 2025.

3. Revenue Recognition under AASB 15

Revenue remains a key audit matter, especially for entities with:

• Multiple-element arrangements
• Contract modifications or rebates
• Long-term construction or service contracts

Areas of audit scrutiny include:

• Timing of revenue recognition (point vs. over time)
• Performance obligation identification
• Cut-off testing around 30 June

Clear documentation of revenue policies and supporting evidence is essential.

4. Climate and ESG-Related Disclosures

While not yet mandatory under Australian Accounting Standards, investors and regulators are expecting increased transparency on climate-related financial impacts.

Expect auditors to review:

• Material climate risks disclosed in the Directors’ Report
• Consistency of financial and narrative disclosures
• Alignment with Task Force on Climate-related Financial Disclosures (TCFD) principles

This area is expected to be a key focus of ASIC surveillance in 2025, and entities are encouraged to improve the quality and completeness of their ESG reporting.

5. Financial Instruments & Fair Value Disclosures

Volatility in interest rates and credit spreads has implications for entities with:

• Derivative contracts
• Intercompany loans
• Investments in financial instruments

Auditors must validate:

• Fair value hierarchy disclosures under AASB 13
• Impairment models under AASB 9, especially Expected Credit Losses
• Interest income recognition and classification

Particular attention is warranted for intercompany lending and related party transactions.

6. Leases under AASB 16

With ATO scrutiny of lease deductions and accounting, proper lease identification and treatment is vital.

Key audit areas:

• Completeness of right-of-use (ROU) assets and lease liabilities
• Judgments regarding lease term and renewal options
• Discount rate assumptions
• Reassessment triggers for modifications

Entities should prepare clear reconciliations and maintain transparent policy disclosures.

7. Cybersecurity and IT General Controls (ITGCs)

As cyber threats grow in sophistication, auditors are expanding their scope on IT environments and access controls.

Expect detailed testing of:

• User access management
• Change management controls
• Data backups and recovery plans
• Integrity of interfaces impacting financial systems

Control weaknesses in ITGCs may result in expanded substantive testing of financial data.

8. ASIC and ATO Focus Areas

The Australian Securities and Investments Commission (ASIC) has reiterated its focus areas for 2025, including:

• Asset values and impairment
• Revenue recognition
• Off-balance sheet arrangements
• Climate risk disclosures

Similarly, the ATO is increasing its scrutiny of:

• Transfer pricing
• Intercompany financing
• Thin capitalisation compliance

Entities must ensure that their documentation supports positions taken, especially on cross-border transactions.

9. Related Party Transactions and Director Declarations

Large proprietary entities should expect increased auditor attention on:

• Loans to/from directors or shareholders
• Compliance with s.295A declarations (directors’ declaration)
• Board minutes and governance frameworks

Entities that are part of a broader group structure must also ensure accurate disclosures under AASB 124.

Final Thoughts

With regulatory expectations tightening and stakeholder scrutiny increasing, robust audit preparation is essential for large proprietary entities in 2025. Management teams should engage early with auditors, reassess internal controls, and refresh documentation to mitigate potential audit issues.

For personalised guidance or technical support, please contact your SRJ Walker Wayland audit advisor.

Navin Prasad
Audit Partner
📞 (07) 3490 9988 | 0488 023 218
✉️ navin.prasad@srjww.com.au
🌐 www.srjww.com.au