The 'Apply your knowledge' question in this chapter referred to Australian Securities and Investments Commission (ASIC) taking the directors of Centro to court over the misclassification of liabilities. On 27 June, the Federal Court found the directors had breached their duty of care. The judge found that each director knew of the interest-bearing securities and should have been aware of the relevant accounting principles that would have alerted them to the error in signing off accounts that classified billions of dollars as long-term rather than short-term debt. Each month the directors received a450-page board package. The financial report presented to the board contained 65 documents with93 sets of complex financials. The directors' defence was that the board papers were voluminous and they could not be expected to absorb that amount of information.
a. Discuss when a liability should be classified as a current liability.
b. Explain why Centro's debt should have been classified as a current liability.
c. Outline the duties of directors in relation to the financial statements.
d. Critique accounting for goodwill and appraise its usefulness for decision making.
e. Each year ASIC conducts a surveillance program of companies' financial reporting. Identify the areas that ASIC focused on in its most recent surveillance program.