Critical Analysis Of Financial Annual Report presented by Telstra Corporations Ltd.
Executive Summary
This report presents a critical analysis to Financial Annual report presented by Telstra Corporations Ltd. The primary purpose of the report is to check or find whether the Telstra Company is following the accounting standards and conceptual framework. The company requires to follow the Australian Accounting Standards Board methods on their financial report considering the obligations of conceptual framework.
This report provides brief introduction to the company and discusses about GPFR (General Purpose Financial Report). The five accounts are chosen for critical analysis which are depreciation, leases, Property, plant and Equipment(PPE) , inventory, and contingent liabilities in accordance to the financial information presenting in the annual report of Telstra in 2017.
This report also provides information regarding the share price of the company over five years of period. This report also includes brief information on the remuneration pay to their executives in the year 2017.
Introduction
Telstra is recognized as Australia’s leading telecommunication and technology corporation which provides and builds full range of communication service all around Australia and competes in telecommunication market. Telstra, alone in Australia provides 17.4 million mobile service, 3.5 million broadband service and 6.8 million voice service. It believes there are more opportunities for them when more people are connected.
The technology built by them is simple and convenient for using which make people easy to use and get connected. It can be said that Telstra is the biggest and fastest mobile network. Telstra is moving ahead with the objective of creating a brilliant future connection for everyone.
Telstra is an entity with limited shares which is incorporated in Australia. The shares get public trade in Australian Securities Exchange (ASX). Like all the other companies in Australia, the financial year for Telstra begins from 1st of July, which means the annual report end date will be 30th of June each year. They require to record all the transaction till the date.
General Purpose Financial Report
A general purpose financial report is a report which presents all of the business related financial information which meets all the requirements of readers such as shareholders, investors, budget planners or business executives. By the name, this report indicates the general observation towards the finance of a company (bizfluent.com, 2017). General purpose financial report includes balance sheet, cash flow statement, income statement, and other reports for the year. The users of the report depend on the report as it contains financial information of the entity. There are 3 categories of groups recognized as the main user of GPFR, which are, parties performing review, resource providers, goods and service recipients.
The General purpose financial report presented by Telstra is a report which is for a profit entity and limited by shares. The report is prepared considering the requirements of Australian Corporation Act 2001, applicable Accounting Standard for Australia and authoritative pronouncement from Australian Accounting Standard Board (AASB). Not only GPRS and AASB, the financial report presented by Telstra also follows International Financial Reporting Standard (IFRS) and International Accounting Standard (IASB) according to Telstra annual report (2017).
Note 1 in financial report of Telstra it is stated that the report contains are in Australian dollar for presentation and unless stated all the values are rounded to nearest million dollar under Australian Securities and Investment Commission (ASIC) Corporation instrument 2016/191. The report by Telstra is prepared considering historical cost except for some financial instruments which are recorded in fair value (Telstra Annual Report, 2017)
The financial report of Telstra includes the company’s assets and liabilities with its controlled entities for a whole financial year till the year end. It also includes the consolidated results and the cash flow statement for the year. The intra-group transaction effects and the balances are eliminated in full from the entity’s financial statements (Telstra Annual Report, 2017).
Some of the financial statement of Telstra for the year 2017 is given below:
Critical Analysis
1. Contingent liability:
According to AASB 137, contingent liability cannot be recognized by an entity. It is a possible obligation that comes from the past events whose existence can be confirmed only from the occurrence or non-occurrence of future events which is not within control of the company. It cannot be recognized by the company since it is unexpected that settlement of the obligation is required for the outcome of resources symbolizing economic benefits. And the number of obligation is difficult to be measured with existing reliability (AASB 137).
Annual report:
According to the Telstra annual report 2015 ,
Analysis:
Telstra has explained and determined their contingent liability with correspondence to AASB and has taken the footprints as a guideline which helps in identification of these liabilities. Telstra has mentioned following in the annual report:
2. PPE:
According to AASB 13, fair value is defined as price that can be received on the sell of an asset or given to transfer of a liability in a transaction which is held between market participants on the measurement date. It is for particular asset and liability. Hence an entity should know the characteristics of their assets and liabilities while measuring the fair value (AASB 13).
Conceptual Framework
Economic phenomena are represented by General Purpose financial report in numbers and words. In order to be convenient financial information should not only be relevant but also faithfully represent phenomena it supports. The underlying characteristic tries to increase the concealed characteristics of completeness, error free and neutrslity (Conceptual Framework 2010).
Annual report
Analysis:
From the information mentioned on Annual report of Telstra, it uses management judgement for cost estimation which is done in regular basis. The assets are accessed in groups among which the individual assets maybe physically retire before or after group’s life is finished. Telstra is adapting this method since some of the assets cannot be individually assessed. This judgement is not correct ,which is the issue of the method which makes it unreliable.
3. Depreciation:
According to AASB 116,
Annual report:
Telstra uses application of management judgement to determine the useful life and residual value of their assets and they review it each year. The values are modified each year as the depreciation expenses changes from reassessment date to the end date of revised useful live (Telstra Annual Report 2017).
Analysis:
Telstra mentioned that they have compared their assets useful life with competitor telecommunication but the useful life of assets of Singtel, another competitor company in Australia, while comparing the two companies have different useful life of their PPE. Though there is difference, Telstra has presented all the information clearly and in detail in their annual report.
4. Leases:
According to AASB 16,
Conceptual Framework:
Economic phenomena are represented by General Purpose financial report in numbers and words. In order to be convenient financial information should not only be relevant but also faithfully represent phenomena it supports. The underlying characteristic tries to increase the concealed characteristics of completeness, error free and neutrslity (Conceptual Framework 2010).
Annual Report:
From the information Telstra Annual report 2017,
Analysis
According to amendment made in AASB regarding leases, it miust appear on balance sheet , but in the report presented by Telstra, AASB 16, -leases are not appropriate. Most of the companies donot like mentioning leases on their annual reports, followiing the trend, Telstra has alos not mentioned leases on their financial reports, therefore it is a doubt that telstra follow the standards and framework to present information.
5. Inventory
According to AASB 102,
Inventory should be measured at lower of cost and a net reliasble value.
Annual report:
Analysis:
Viewing the information and notes provided on the annual report of Telstra regarding inventories, it seems the company is following the Accounting standards and methods established by AASB to value their inventory.
Remuneration:
The annual report of Telstra provides a brief information on the remuneration paid to their executives which is mentioned below.
Telstra share price graph
The highest share price for Telstra is reported in February 2015, as shown in the graph for the time period of 5 years. As shown in the graph, the share price went high in year 2015 and gradually started to fall down. In 2017, you can see the lowest share price in the whole 5 year period. Currently, the share price for Telstra is 3.66 Australian dollar which is the lowest share price so far.
There is no big reason for the declining share price of Telstra, but additional small telecommunication entities, rising mobile competition can be a reason for the declining share price.
Conclusion:
From the information on the financial report of Telstra we can see that Telstra is following the accounting standards and methods in presenting their financial situation and information. We can see some of the unrealistic management judgement made by the company while preparing financial reports. Normally most of the companies do not want to disclose their barriers, debt or uncertainties in their financial report to make the company look healthier and profit earning. They prefer showing more assets in their statement of financial position to portrait a sustainable image of the company.
Accounting manipulation has been common which arises from hiding actual data and presenting false numbers by accountants to make their financial position stable which ensures their shareholders and investors that the company is doing well. The manipulation in the financial reports can lead to company insolvency for example, big companies like Enron, Lehman Brothers, Rio Tinto, Olympus, etc.
It is important and compulsion to deliver truthful and correct information in their financial report as it is viewed by public and it is more important since it is a public company and their shares are bought by the public. Public has got right to obtain the correct information regarding the financial situation of company and the company’s performance. Therefore, companies must follow the accounting standards and conceptual frame work and deliver reliable and correct information.
Reference
Bizfluent.com.(2017). What is General Purpose Financial Report? [online] Available: https://bizfluent.com/info-7807641-general-purpose-financial-report.html [Accessed 21 Dec. 2017].
Telstra Annual Report 2015,[online] viewed on 21 Dec. 2017. Available: https://telstra2015ar.interactiveinvestorreports.com/financialreports/#&gid=1&pid=52
Australian Accounting research Foundation 2001, Objective of General Purpose Financial reporting, viewed 20 Dec. 2017. Available: http://www.aasb.gov.au/admin/file/content102/c3/SAC2_8-90_2001V.pdf
Australian Accounting Standard Board 2014, Property, plant and Equipment, viewed 22 Dec. 2017. Avaiable: <http://www.aasb.gov.au/admin/file/content105/c9/AASB116_07-04_COMPjun14_07-14.pdf>.
Telstra Annual Report 2017,[online] viewed on 21 Dec. 2017. Available: https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf-e/Annual-Report-2017.PDF
Telstra Corporation Limited [online] Available: https://www.telstra.com.au/aboutus/investors/share-price [accessed 22 Dec. 2017]
Australian Accounting Standard Board 2011, Fair Value Measurement, Australian Government, viewed 22 Dec 2017, <http://www.aasb.gov.au/admin/file/content105/c9/AASB13_09-11.pdf
