Key Accounting Policies of Telstra Corporation

This document provides an overview of the key accounting policies followed by Telstra Corporation, the largest telecommunication company in Australia. It discusses how the company complies with Australian accounting standards and the principles used to value assets. The document also explores the accounting flexibility and strategy of the company. A comparative analysis with TPG Telecom Limited is provided, along with a conclusion highlighting Telstra's compliance with financial reporting requirements.

Running head: ACX3150
ACX3150
Name of the Student:
Name of the University:
Authors Note:

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Contents
Introduction:....................................................................................................................................2
Key accounting policies:..................................................................................................................4
Accounting flexibility:.....................................................................................................................7
Accounting Strategy:.......................................................................................................................8
Comparative analysis:......................................................................................................................8
Conclusion:......................................................................................................................................9
References:....................................................................................................................................10

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Introduction:
Telstra Corporation is an Australian telecommunication company and an important
constituent of Australian Stock Exchange. In fact it is the largest telecommunication company in
the country. Australian companies are required to comply with the Australian standards on
accounting, shortly denominated as AASBs to record financial transactions and compile financial
statements from such accounting records. A brief discussion on the accounting policies followed
by the company shall be discussed here in this document.
Extract of Balance sheet containing the values of different assets only to comment on the key
accounting policies used to value the assets of the company:
The extract below has been prepared from annual report of Telstra over the years to help the
readers to understand key accounting policies followed by the company.
Assets of TELSTRA CORP LTD
All amounts are in AUD million 2014-06 2015-06 2016-06 2017-06 2018-06
Assets
Current assets
Cash 5,527
.00
1,396
.00
3,550
.00
938
.00
629
.00
Accounts receivable 2,950
.00
3,438
.00
3,343
.00
3,635
.00
3,146
.00
Inventories 362 491 557 893 801

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.00 .00 .00 .00 .00
Deferred income taxes
2.00 9.00 8.00
1
1.00 6.00
Prepaid expenses 329
.00
346
.00
426
.00
531
.00
548
.00
Other current assets 1,268
.00
1,290
.00
1,456
.00
1,854
.00
1,947
.00
Total current assets 10,438.
00
6,970
.00
9,340
.00
7,862
.00
7,077
.00
Non-current assets
Gross property, plant and
equipment
62,668.
00
65,329.
00
64,960.
00
64,312.
00
64,949.
00
Depreciation (accumulated) (42,826.
00)
(44,879.
00)
(44,379.
00)
(42,962.
00)
(42,841.
00)
Net property, plant and
equipment
19,842.
00
20,450.
00
20,581.
00
21,350.
00
22,108.
00
Equity and investments 323
.00
338
.00
565
.00
486
.00
1,273
.00
Goodwill 395 1,652 1,346 1,269 1,049

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.00 .00 .00 .00 .00
Patent, trademark and copyright 5,987
.00
7,680
.00
7,883
.00
8,289
.00
8,131
.00
Deferred income taxes
7.00
6
6.00
5
4.00
4
4.00
5
4.00
Prepaid pension benefit 4
4.00
296
.00
1
5.00
142
.00
250
.00
Other long-term assets 2,324
.00
2,993
.00
3,502
.00
2,691
.00
2,928
.00
Total non-current assets 28,922.
00
33,475.
00
33,946.
00
34,271.
00
35,793.
00
Total assets 39,360.
00
40,445.
00
43,286.
00
42,133.
00
42,870.
00
Key accounting policies:
An entity involved in conducting business operations in Australia are required to prepare general
purpose financial reports as per the provisions of Australian Corporations Act 2001 and
accounting standards applicable in Australia (AASBs). Telstra has stated in the annual report that
it has complied with the provisions of Corporations Act 2001 and AASBs. The financial
statements has been prepared using historical cost except some categories of financial

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instruments which have been valued using fair value accounting concept (Sutton, Cordery & van
Zijl, 2015).
In order to prepare financial reports the management needs to make certain estimates and
judgments. The accounting policies, estimates and judgments used by the management are
enumerated in the table below.
AASB 3:
The company has complied with the principles and policies enumerated in AASB 3 while
reporting assets and liabilities acquired in a business combination.
AASB 4:
To report matters related to insurance contracts the company has complied the requirements of
AASB 4. Since the business is a profit oriented entity hence, the requirements for profit oriented
business are followed in preparation and presentation of financial reports.
AASB 7:
For disclosure of financial instruments the principles and policies laid down in AASB 7 are
followed and complied with. Financial instruments have been valued using fair value whereas all
the other assets and liabilities of the company have been accounted for using historical cost
(Dennis, 2018). The extract below shows the principle used by the company to recognize and
measure financial instruments.

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AASB 8:
The company has number of operating segments, these segments are segregated and reported as
per the principles laid down in AASB 8. The following extract from notes to accounts shows
segment wise performance of the company.

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Segment wise results have been disclosed by the company as per AASB 8 as is clear from the
above disclosure. The segments have been selected on the basis of the following as per the IFRS
and AASB:

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AASB 13:
For fair value measurements in respect of certain financial instruments, the guidelines and
measurement techniques enumerated in AASB 13 were followed by the company.
AASB 15:
To recognize the revenue from contracts with customers the revenue recognition criterions
mentioned in AASB 15 have been followed and complied with. As per the standard revenue has
been recognized by the company only when the revenue has either been received or will be
received in the future without any uncertainty. The following extract from income statement of
the company shows the amount of revenue recognized by the company in 2018 and 2017.

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AASB 16:
The company has fair share of lease agreements. The lease agreements have been presented in
the accounts as per AASB 16 to reflect the financial reality of different lease agreements. The
classification of leases into financial and operating leases have been done on the basis of AASB
16 to reflect the financial reality behind each lease agreement in the financial statements of the
company. Telstra as lessor has used the following strategy to record lease agreements in the
financial statements.
AASB 102:
The company has valued inventories at lower of cost of net realizable value as per the principles
laid down in AASB 102. The inventory valuation is shown below.

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AASB 116:
The company has significantly large quantum of property, plant and equipment as can be seen
from the extract of Balance sheet of the company provided at the beginning of the document.
The company has correctly followed the principles and policies laid down in AASB 16 to value
PPE in its books of accounts.
Accounting flexibility:
Flexibility in accounting has both positive and negative connotations to it. Too much flexibility
in accounting policies keeps a door open for possible manipulation in accounting whereas rigid
accounting policy creates difficulty in reflecting the actual financial performance and position of
an organization in its financial statements. Thus, it is important to find the correct balance
between flexibility and rigidity in accounting (Bertoni & De Rosa, 2013).
The management has made certain judgments and assumptions in order to prepare the financial
reports of the company. The detailed of these assumptions and judgments including key
accounting policies are provided in the annual report of the company. The detailed list of these

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assumptions and judgments are given in the table below in the form of an extract taken form the
Annual Report 2018 of the company.
The assumptions and judgments are not at all contradictory as can be seen from the above notes
in relevant pages in the annual report 2018 of the company. Thus, the management has tried to
maintain accounting flexibility without affecting the quality of financial reports of the company
and by ensuring that the possibility of manipulation of accounts is minimum.
Accounting Strategy:
Accounting strategy of the company is clear from the accounting objective of the company. As
per annual report of the company the management has specifically mentioned the importance of
true and fair representation of financial performance and position of the company in the general
purpose financial reports. Complying with relevant accounting policies and principles as
applicable to the company as per The Corporations Act 2001 have been followed and will

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continue to follow to correctly disclose the financial information necessary to provide useful
information to the stakeholders of the company (Azam, 2017).
Comparative analysis:
TPG Telecom Limited is another Australian telecommunication company though relatively
smaller in operations and services compared to Telstra. As per the notes to accounts in the
financial statements of TPG, it is clear that the company like Telstra has complied with AASBs
and Corporations Act 2001. The company however, unlike Telstra has used fair value
measurement to measure derivatives, investment and financial instruments. TPG also has not
provided detailed assumptions and judgments made to prepare financial reports like Telstra.
Instead it has just mentioned that assumptions and judgments have been reviewed on ongoing
basis. Another major contrast in accounting treatment is the amortization of intangible assets.
TPG unlike Telstra has amortized intangible assets assuming these assets have infinite useful
lives.
Conclusion:
In summary it can be clearly stated that Telstra Corporation has complied with the
financial reporting requirements in Australia as per the conceptual framework of financial
reporting. All the relevant accounting standards (AASBs) were followed in recording the
financial transactions in the books accounts of the company. From the above assessment it is safe
to say that the financial reports of the company correctly states the financial performance and
position of the company as at the end of the relevant financial year.

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References:
Azam, M. (2017). Challenges to the Users of Financial Reports Constructed Using Multiple
Measurement Bases: A Review of the IASB’s Conceptual Framework for Financial
Reporting. International Journal Of Accounting And Financial Reporting, 7(2), 172. doi:
10.5296/ijafr.v7i2.11952
Bertoni, M., & De Rosa, B. (2013). Comprehensive Income, Fair Value, and Conservatism: A
Conceptual Framework for Reporting Financial Performance. SSRN Electronic
Journal, 2(4), 17-26. doi: 10.2139/ssrn.2239303
Dennis, I. (2018). What is a Conceptual Framework for Financial Reporting?. Accounting In
Europe, 15(3), 374-401. doi: 10.1080/17449480.2018.1496269
Sutton, D., Cordery, C., & van Zijl, T. (2015). The Purpose of Financial Reporting: The Case for
Coherence in the Conceptual Framework and Standards. Abacus, 51(1), 116-141. doi:
10.1111/abac.12042