Analysis of Vodafone Group Plc's Compliance with AASB Conceptual Framework

This report analyzes the compliance of Vodafone Group Plc with various components and standards of AASB Conceptual Framework. It also considers the analysis of qualitative characteristics of financial information and certain issues in the financial statements of the company.

Running head: ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Accounting Theory and Contemporary Issues
Name of the Student
Name of the University
Author’s Note

1ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Executive Summary
The intention of this report is the analysis of the compliance of Vodafone Group Plc with various
components and standards of AASB Conceptual Framework. This report also considers the
analysis of both the fundamental and enhancing qualitative characteristics of financial
information. Another major part of this report is the analysis of certain issues in the financial
statements of the company.

2ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Table of Contents
Introduction......................................................................................................................................3
Company Background.....................................................................................................................3
Financial News................................................................................................................................3
Conceptual Framework....................................................................................................................4
Fundamental Qualitative Characteristics.........................................................................................4
Enhancing Qualitative Characteristics.............................................................................................7
Financial Issues................................................................................................................................8
Revenue Recognition...................................................................................................................9
Goodwill Valuation.....................................................................................................................9
Taxation.......................................................................................................................................9
Capitalization and Asset Lives..................................................................................................10
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

3ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Introduction
The main aim of this report is the analysis as well as evaluation of the 2018 Annual
Report of Vodafone Group Plc (VPG) with the aim to determine the fact that whether the
financial statements of the company have been prepared and presented as per the standards and
principles of Australian Accounting Standard Board (AASB). This report also considers the
analysis of certain issues present in the financial statements of VPG for the year 2018 along with
a brief description of the company.
Company Background
VPG is a telecommunication company that involves in providing mobile and fixed
broadband services to many countries all over the world along with Australia (vodafone.com.au
2018). In Australia, the 4G mobile network of VPG covers more than 22 million Australians. In
Australia, Vodafone Hutchinson Australia is the result of 50:50 joint ventures between VPG and
Hutchinson Telecommunications (Australia) (vodafone.com.au 2018). VPG has a customer base
of almost 6 million as of 30 June 2018. The unique consumer and enterprise initiatives of VPG
include no lock handset along with $5 Roaming plans for the mobile customers and 4G back-up
along with Instant Connect for the fixed customers (vodafone.com.au 2018).
Financial News
As per the new published in The Guardian on 30 August 2018, both Vodafone Australian
and TPG Telecom have agreed on a merger for $15 billion with the aim to develop a new
telecommunication company (theguardian.com 2018). The main aim behind this merger is to
give serious competition to both Telstra and Optus for providing lower price products to the

4ACCOUNTING THEORY AND CONTEMPORARY ISSUES
customers. It is expected that the new company, TPG Telecom Limited will be able in generating
revenue of $6 billion annually. On the basis of this deal, it can be said that it will be profitable
for the investors to invest in VPG for gaining higher return on investment.
Conceptual Framework
It is needed for all the Australian companies to comply with the standards and regulations
of AASB Conceptual Framework for the preparation and presentation of the financial statements.
For this reason, they are needed to follow the requirements of measuring as well as recognizing
the assets, liabilities, equity, income and expenses (Newberry 2015). According to the 2018
Annual Report of VPG, the company has prepared and presented their financial statements with
accordance to the principles of International Financial Reporting Standards (IFRS) issued by the
International Accounting Standard Board (IASB) (vodafone.com 2018). At the same time, VPG
has complied with the principles of European Union Companies Act 2006. Thus, it can be
observed that VPG has not followed the principles of AASB Conceptual Framework as they
have complied with IFRS Conceptual Framework issued by IASB (vodafone.com 2018). The
main reason for this is that the origin of VPG is Great Britain and this aspect has put the
obligation on the company to comply with the principles of IFRS and IASB. In addition, it can
be noticed from the 2018 Annual Report of VPG that the company has adopted fair value method
for the measurement and recognition of their assets, liabilities, equity, income and expenses
(ifrs.org 2018).
Fundamental Qualitative Characteristics
The fundamental qualitative characteristics are Relevance and Faithful Representation;
and they are discussed below:

5ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Relevance: Financial information is considered as relevant if they are able to make positive
difference in the decision-making process of the users. For this, information needs to be both
confirmatory as well as predictive value (Barth 2013). According to the 2018 Annual Report of
VPG, the users can predict the future performance of the company from the provided financial
information; and they can obtain the result of previous evaluation from them.
(Source: vodafone.com 2018)

6ACCOUNTING THEORY AND CONTEMPORARY ISSUES
It can be seen from the above image that the company has provided detailed information
about their revenues and profits that helps the users in predicting the future performance
(vodafone.com 2018).
Faithful Representation: Financial information must faithfully represent what it purports to
present; and they need to be neutral, complete and free from errors (Tayeh, Al-Jarrah and Tarhini
2015). It can be seen from the 2018 Annual Report of VPG that the company has provided
complete natural description as well as numerical description of their different financial
substances like assets and liabilities that helps the users in determining the financial position of
the company. The following example is provided for this purpose.
(Source: vodafone.com 2018)
The company has provided both the natural and numerical description of the property,
plant and equipment of their business (vodafone.com 2018).

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Enhancing Qualitative Characteristics
The enhancing qualitative characteristics are Comparability, Verifiability, Timeliness and
Understandability; and they are discussed below:
Comparability: Relevant financial information is most useful when they can be compared with
the similar information reported by other companies and the same company in other period
(Wang 2014). As per the 2018 Annual Report of VPG, the financial information of the company
can be compared with Telstra, another telecommunication company. The example is shown
below:
(Source: vodafone.com 2018 and Telstra.com.au 2018)

8ACCOUNTING THEORY AND CONTEMPORARY ISSUES
It can be seen from the above that statement of financial position of both VPG and Telstra
can be compared side by side. At the same time, it can be said from the comparison that Telstra
has complied with AASB and Corporations Act 2001 where VPG has complied with IFRS and
European Union Corporations Act 2006 (vodafone.com 2018).
Verifiability: The users of the financial statements must be able in verifying the accounting
methods used by the companies with their knowledge and independent observations (Henderson
et al. 2015). As per the 2018 Annual Report of VPG, the users can verify the used accounting
methods by verifying the accounting information from notes to the financial statements
(vodafone.com 2018).
Timeliness: Business organizations must make their financial information timely available to the
users without any delay so that they can be helpful in financial decision making process (Francis,
Hasan and Wu 2013). In case of VPG, the company provides their financial information on
timely manner through quarterly, half-yearly and annual financial statements (vodafone.com
2018).
Understandability: Understandability helps the users in comprehending the obtained financial
information for making them relevant; and thus, information must be presented clear and concise
manner (Francis, Pinnuck and Watanabe 2013). As per the 2018 Annual Report of VPG, the
company has provided required justification, clarification and assumptions in the notes to the
financial statements so that udders can easily comprehend them (vodafone.com 2018).
Financial Issues
There are certain issues in the 2018 Annual Report of VPG; and they are discussed below
in details:

9ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Revenue Recognition
The presence of an inherent risk can be seen in revenue recognition process of VPG due
to the complexity of the whole system along with the impact of the changing price model for the
recognition of revenue. It can be seen that VPG has adopted the new revenue recognition
standard that is IFRS 15 and it will impact the company as there will be an increase in the
retained earnings of the company by €2.1 billion to €2.8 billion (vodafone.com 2018).
Goodwill Valuation
As per the 2018 Annual Report of VPG, the company has goodwill worth €26.7 billion
that is contained within 20 cash generating units (CGUs). The company has recognized the
impairment charges to goodwill in prior period. However, issue can be seen in Vodafone India as
the group treats them as held for sale along with discontinued operation at the date of balance
sheet. The company has determined its recoverable value on the lower of carrying amount and
fair value less cost of disposal basis. This particular method has contributed to an impairment
charge of €3.2 billion in 31 March 2018 that is a huge expense for the company (vodafone.com
2018).
Taxation
According to the 2018 Annual Report of VPG, there is an issue in the company related to
legal claim for withholding tax on the acquirement of Hutchinson Essar Limited along with the
recognition as well as recovery of deferred tax assets in India, Spain, Germany and Luxembourg.
The presence of major uncertainties can be seen in the resolution of these taxation cases and it is
creating major issue for the company. For this reason, VPG has to concede deferred tax losses
amounted €21.3 billion, €2.8 billion and €0.9 billion in Luxembourg, Germany and Spain
respectively along with €1.6 billion related to the deferred tax in India (vodafone.com 2018).

10ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Capitalization and Asset Lives
VPG has been facing major issues as management judgment impacts the carrying value
of property, plant and equipment and software intangible assets along with their depreciation
profiles. These aspects include capitalization decision, review of annual asset lives, timeliness of
transfer and others (vodafone.com 2018).
Conclusion
The above discussion indicates towards the fact that VPG has not followed the principles
and standards of AASB Conceptual Framework due to the fact that the company has adhered to
the Conceptual Framework of IFRS issued by IASB. As per the discussion, the company has
complied with both the fundamental as well as enhancing qualitative characteristics in their
financial reporting. After that, the report also shows the presence of certain issues in the 2018
Annual Report of the company; these issues are related to goodwill valuation, revenue
recognition, asset capitalization and taxation. Thus, it is needed for the company to take into
consideration these issues for increasing the future financial prospect of the company.

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References
Barth, M.E., 2013. Measurement in financial reporting: The need for concepts. Accounting
Horizons, 28(2), pp.331-352.
Farrer, M. 2018. Vodafone Australia and TPG announce $15bn merger. [online] the Guardian.
Available at: https://www.theguardian.com/business/2018/aug/30/vodafone-australia-and-tpg-
announce-15bn-merger [Accessed 21 Dec. 2018].
Francis, B., Hasan, I. and Wu, Q., 2013. The benefits of conservative accounting to shareholders:
Evidence from the financial crisis. Accounting Horizons, 27(2), pp.319-346.
Francis, J.R., Pinnuck, M.L. and Watanabe, O., 2013. Auditor style and financial statement
comparability. The Accounting Review, 89(2), pp.605-633.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting.
Pearson Higher Education AU.
Ifrs.org. (2018). [online] Available at: https://www.ifrs.org/-/media/project/conceptual-
framework/fact-sheet-project-summary-and-feedback-statement/conceptual-framework-project-
summary.pdf [Accessed 21 Dec. 2018].
Newberry, S., 2015. Public sector accounting: shifting concepts of accountability. Public Money
& Management, 35(5), pp.371-376.
Tayeh, M., Al-Jarrah, I.M. and Tarhini, A., 2015. Accounting vs. market-based measures of firm
performance related to information technology investments. International Review of Social
Sciences and Humanities, 9(1), pp.129-145.

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Telstra.com.au. (2018). Telstra - Annual reports - Investors. [online] Available at:
https://www.telstra.com.au/aboutus/investors/financial-information/reports [Accessed 21 Dec.
2018].
Vodafone Australia. 2018. Information about Vodafone.. [online] Available at:
https://www.vodafone.com.au/about/company [Accessed 21 Dec. 2018].
Vodafone.com., 2018. Annual Report 2018. [online] Available at:
https://www.vodafone.com/content/annualreport/annual_report18/downloads/Vodafone-full-
annual-report-2018.pdf [Accessed 21 Dec. 2018].
Wang, C., 2014. Accounting standards harmonization and financial statement comparability:
Evidence from transnational information transfer. Journal of Accounting Research, 52(4),
pp.955-992.