ASX CGC Principles

Remunerate fairly and responsibly 8 Assessment of Risk 8 Nature of the company 8 Overview of the market 9 Telstra’s business strategy 9 Ratio calculations 9 Relevant Audit risk 11 Methods to reduce the risk 12 Conclusion 12 References 13 Executive summary This report gives a brief summary of Australia’s leading telecommunication company; Telstra Corporation Limited. Telstra, being listed on ASX is also required to comply with the CGC principles and due to following implications are been there: Company has to clearly reflect the duties and

RUNNING HEAD: AUDIT, ASSURANCE AND COMPLIANCE
Auditing

Audit, assurance and compliance 1
Contents
Introduction...........................................................................................................................................3
Principles of ASX CGC.........................................................................................................................3
1. Lay solid foundations for management and oversight...................................................................4
2. Structure the board to add value....................................................................................................5
3. Act ethically and responsibly.........................................................................................................5
4. Safeguard integrity in corporate reporting.....................................................................................6
5. Make timely and balanced disclosure............................................................................................7
6. Respect the rights of security holders............................................................................................7
7. Recognize and manage risk...........................................................................................................7
8. Remunerate fairly and responsibly................................................................................................8
Assessment of Risk................................................................................................................................8
Nature of the company......................................................................................................................8
Overview of the market.....................................................................................................................9
Telstra’s business strategy.................................................................................................................9
Ratio calculations..............................................................................................................................9
Relevant Audit risk..........................................................................................................................11
Methods to reduce the risk...............................................................................................................12
Conclusion...........................................................................................................................................12
References...........................................................................................................................................13

Audit, assurance and compliance 2
Executive summary
This report gives a brief summary of Australia’s leading telecommunication company;
Telstra Corporation Limited. The report highlights that company completely complies with
ASX CGC principles and make efforts to reduce the audit risks. The first part of the report
provides an overview of the company including the explanation of the corporate governance
principles. It states the implication of such principles and Telstra’s compliance with them.
The second part deals with the risk assessment of the company. It includes computation of
ratios and identification of relevant audit risk. Ways to reduce such risk are been explained in
the later part of the report along with the conclusion.

Audit, assurance and compliance 3
Introduction
Telstra Corporation Limited is an Australia based leading telecommunications and
technology company having it’s headquarter situated in Melbourne. The company deals with
establishing the telecommunication networks and offering product and services like mobile,
internet access and many other. There are approx. 17.4 million mobile services, 6.8 million
fixed voice services and 3.5 million retail fixed broadband services provided by Telstra
Corporation. As reported in year 2016, the firm owns 360 retail stores and is currently listed
on Australian Stock Exchange (ASX) traded with a ticker symbol of ASX: TLS
(Telstra.com.au. 2018).
Principles of ASX CGC
Corporate governance basically defines the way in which a corporation should be governed.
It is technique used for directing and managing the companies in order to achieve the pre-
determined targets. CG states some rules, regulations, systems and processes that are required
to be followed in order to control the authorities and the corporation (Asx.com.au. 2014).
Telstra, being listed on ASX is also required to comply with the CGC principles and due to
following implications are been there:
 Company has to clearly reflect the duties and responsibilities of its board of directors
in its corporate governance statement.
 It is obliged to modify its board structure as per the requirements of the principle.
Required skills and composition must be pursued by company’s directors.
 Ethics and responsibility must be there in Telstra’s operations and actions.
 Due to the ASX principle, company has to maintain the integrity in the corporate
reporting and the same is to be followed by the audit and risk management committee
of the organization.

Audit, assurance and compliance 4
 While complying with the principles, Telstra has to make timely and balanced
disclosure of all the material facts that can affect the company’s share prices and
values.
 It is the responsibility of Telstra to give accurate and appropriate information to its
shareholders for protecting and respecting their rights.
 The company has to build a risk management framework and must conduct a timely
review of the same.
 Providing fair remuneration to the directors is another implication of following CGC
principles (Asx.com.au. 2014).
However, in order to deal with such implications, Telstra has published its corporate
governance statement which clearly reflects that the company has followed all the listed eight
principles of ASX CGC. It has complied with all the recommendation to form its corporate
government. The principles are as follows:
1. Lay solid foundations for management and oversight
This recommendation states that the company should disclose the respective roles and duties
of its directors and management. Telstra’s CGS has clearly stated the above which includes:
 Giving approval to the strategies and corporate plan and monitoring their
implementation.
 Making the appointment of CEO, evaluating his performance and assessing his
remuneration.
 Appointing and remunerating the senior management and approving the framework
regarding the same.
 Overseeing the external and internal audit activities, assessing the financial risk and
preparing the framework for the management of the same.

Audit, assurance and compliance 5
 Setting the strategic objectives for the company.
Apart from the above listed responsibilities, board of directors perform many functions in the
best interest of their shareholders (Telstra.com.au. 2017).
2. Structure the board to add value
This principles deals with having a suitable board size, composition and skills in order to
complete their responsibilities. Telstra has 10 directors, out which nine are non-executives
and one is CEO. Issues related to the composition of board are handled by Board and
Nomination Committee of the organization. The board charter also has a skills matrix which
assist the committee to have an appropriate mix of diverse skills and experience. The matrix
is as follows:
Deliver amazing customer
experience
 Information about marketing and
retail sector.
 Competitive and dynamic markets
Experience value and growth  Geographical expertise and
experience in the same.
Building new growth in the
business.
 CEO level experience.
 NED experience.
3. Act ethically and responsibly
This requires the company to follow a proper code of conduct and policy framework to act
ethically in the business. Telstra main purpose is to maintain high standards of behavior by
following its values and code of conduct.
Values

Audit, assurance and compliance 6
Company has five values which are:
 Show the care
 Always better together.
 Establish trust between each other.
 Making the complex simple.
 Finding the courage
These values help the company in shaping the decisions and action of the employees and the
people associated with the organization (Telstra.com.au. 2017).
Code of conduct
The codes define that Telstra is committed to have a good corporate governance, responsible
business practices and taking care of the customers, community and the society in which it
operates. In order to have the same, company has taken many steps such as resolving the
conflicts, anti-corruption committees, establishing sustainability and many more.
4. Safeguard integrity in corporate reporting
Telstra has an Audit & Risk management committee which is held responsible for protecting
the integrity in corporate reporting. The duties of the committee includes:
 Helping the board in the matters related to financial reporting, identified risks, internal
control measures, external audit, compliances and all the issues that can impact the
financial position of the company.
 Reviewing the activities of the directors and company’s compliance with its legal
requirements.
 Establishing a mode of communication between board, management and internal and
external auditor.

Audit, assurance and compliance 7
 Giving advice on risk management and external audit.
The committee must have at least three directors who are independent and non-executive.
Also it should properly discharge its duties (Telstra.com.au. 2017).
5. Make timely and balanced disclosure
This principle allows the firm to disclose all the material facts and figures which are
important to the shareholders. Telstra has a Continuous Disclosure Committee which has to
deal with all the disclosure related matters. Company aims at providing timely disclosures to
its investors, stakeholders and communities at time of complying with ASX listed principles.
It has market disclosure policies and practices, according to which advance notice is been
given to the key people regarding the announcements and disclosure (Telstra.com.au. 2017).
6. Respect the rights of security holders
By providing appropriate information to the shareholders, company is able to respect the right
of its security holders. Telstra displays all the material information on its official website. The
website as a section named as Investors Relations which displays all the ASX
announcements, financial and CSR reports, dividend history and share price related
information.
7. Recognize and manage risk
This recommendation makes the company to have a sound risk management framework for
dealing with risks and uncertainties. Also time to time review of the same is required by
designated authority or committee. In case of Telstra, it has a risk management framework
that guides the organization in managing various types of risks. The framework lay down a
set of components that are used for designing, implementing, monitoring and reviewing the
risk management process. The process consists of:

Audit, assurance and compliance 8
 First line: the operational management and stakeholders of the company are held
responsible for identifying and managing their risks.
 Second line: the chief risk office and management team within the business are
accountable for monitoring and complying with the framework.
 Third line: Telstra’s group internal audit function performs the tasks related to
providing independent assurance and managing the risk and internal control process.
8. Remunerate fairly and responsibly
This principle requires the corporation to pay fair remuneration to their directors in order to
attract and retain them within the organization. In order to comply with this, Telstra has a
remuneration committee which assist the board in following matters:
 Fixing the remuneration of directors, CEO and company secretary.
 Fairly remunerating senior management.
 Forming related strategies, practices and disclosures.
 Preparing employee equity plans and management successions.
All the above listed principles are been stated in the corporate governance statement of
Telstra Corporation and the company duly followed them in its business (Telstra.com.au.
2017).
Assessment of Risk
Nature of the company
Telstra Corporation was originated in 1975 and as of now it has become a leading
telecommunication company of Australia. The company mainly focuses on building
technology and content solutions which are easy and simple to use for the customers. They
also include Australia’s fastest national mobile network. Many strategies are been formed
and implemented in order to provide best services to the client or customers. The purpose of

Audit, assurance and compliance 9
the company is to create a brilliant connected future by providing easy to use devices and
communication services (Telstra.com.au. 2018).
Overview of the market
Australian Telecommunication market provide unique service for which consumers are ready
to pay substantial price premium. Telstra charges a premium of $20 per month for fixed line
services and $9 per month for using mobile services. The premium reflected both the limited
competition and quality differences in the services. In market there are many areas
specifically the regional areas, where the services are provided by Telstra only. As a result of
which, regional customers are highly affected by the telecommunications market structure.
The company is the sole provider of approx. 46% of fixed line services and for that it charges
a premium between $450 and $650 per household (TheCIE.com. 2015).
However, being covering a huge market share, Telstra is exposed to some kind of audit risk
which the company is required to reduce by using appropriate methods.
Telstra’s business strategy
The corporate strategy of the business is to deliver brilliant experience to the customers by
providing best networks, products and services to them. The core strategy is to make the
business more efficient and profitable by focusing on customer satisfaction, revenue growth
and network superiority. In order to implement such strategy, Telstra put efforts on making
its network better by increasing it speed, reliability and security. The company focuses on
making it processes and systems digitized for simplifying them for their users
(Telstra.com.au. 2018).
Ratio calculations
Income statement ratios
Gross Profit margin 2017

Audit, assurance and compliance 10
Gross profit (A) 14954
Net sales (B) 25912
A/B 58%
Net profit
margin 2017
Net profit (A) 3891
Net sales (B) 25912
A/B 15%
Earnings per share 2017
Net income (A) 3891
Number of outstanding shares (B) 11968
A/B 0.33
Operating profit
margin 2017
Operating profit (A) 2067
Net sales (B) 25912
A/B 8%
Return on Equity 2017
Net income (A) 3891
shareholders’ equity
(B) 14541
A/B 27%
(Financials.morningstar.com. 2018).
Balance sheet ratios
Current ratio 2017
Current Assets (A) 7862
Current Liabilities (B) 9159
A/B 0.86
Quick Ratio 2017
Quick Assets (A) 6438
Current Liabilities (B) 9159
A/B 0.70

Audit, assurance and compliance 11
Debt-equity
ratio 2017
Debt (A) 16943
Equity (B) 14541
A/B 1.17
Days Sales Outstanding 2017
Receivables (A) 3489
Revenue (B) 25912
A/B*365 49.15
Receivables Turnover 2017
Revenue (A) 25912
Average Accounts Receivables
(B) 3489
A/B 7.43
Inventory Turnover 2017
COGS (A) 10958
Average inventory (B) 725
A/B 15.11
Days Inventory Outstanding 2017
Inventory (A) 725
COGS (B) 10958
A/B*365 24.15
(Financials.morningstar.com. 2018).
Relevant Audit risk
Basically there are three types of audit risk, an organization is exposed to. They are named as
inherent risk, detection risk, and control risk. All these risk differs from each other in some
way. However, Telstra being a complex business and a large company, it is generally
associated with inherent risk in the organization. The risk which occurs due to misstatement
in financial statements is known as inherent risk. There is huge possibility that a company

Audit, assurance and compliance 12
like Telstra can face such risk because of its diverse segments and complex business structure
(Knechel & Salterio, 2016).
Methods to reduce the risk
In order to deal with such risk, company should employ following methods in the
organization.
 Harmonized the accounting and auditing standards.
 Improve and continuously review the internal control process and system followed
within the business.
 Hire qualified accountant for making financial accounts so that they can apply correct
standards while preparing reports.
 Critically review the performance and role of Audit & Risk management committee.
By following the suitable methods, Telstra can reduce its inherent risk and can maintain a
true financial position in the market (Loughran, 2010).
Conclusion
The above report concludes that, Telstra Corporation truly follows all the ASX CGC listed
principles and recommendation and do comply with them. The report also find out about the
audit risk associated with the company and provide some measures to reduce it. The given
ways will help the company to deal with such risk and uncertainties.

Audit, assurance and compliance 13
References
Asx.com.au. (2014). Corporate Governance Principles and Recommendations. Retrieved
from https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-
recommendations-3rd-edn.pdf
Financials.morningstar.com. (2018). Balance Sheet for Telstra Corp Ltd (TLS). Retrieved
from http://financials.morningstar.com/balance-sheet/bs.html?
t=TLS&region=aus&culture=en-US
Financials.morningstar.com. (2018). Income Statement for Telstra Corp Ltd (TLS). Retrieved
from http://financials.morningstar.com/income-statement/is.html?
t=TLS&region=aus&culture=en-US
Knechel, W.R. & Salterio, S.E. (2016). Auditing: Assurance and risk. 4th ed. Routledge.
Loughran, M. (2010). Auditing for dummies. Indiana: John Wiley & Sons.
Telstra.com.au. (2017). Governance at Telstra. Retrieved from
https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf-e/Corporate-
Government-Statement-2017.pdf
Telstra.com.au. (2018). Our corporate strategy. Retrieved from
https://www.telstra.com.au/aboutus/our-company/future/Ourcorporatestrategy
Telstra.com.au. (2018). Telstra - Purpose & values - Our Company. Retrieved from
https://www.telstra.com.au/aboutus/our-company/present/purpose-values
Telstra.com.au. (2018). Telstra - Investors Retrieved from
https://www.telstra.com.au/aboutus/investors
TheCIE.com. (2015). Australia's open telecommunications market: the new framework.
Retrieved from https://www.communications.gov.au/sites/g/files/net301/f/Vodafone
%20-%20Attachment%20E.pdf