BA302 Accounting Theory: Comparing Accounting Policies of Telstra, TPG

This report examines the accounting theory related to property, plant, and equipment (PPE), focusing on the accounting policies of Telstra and TPG Group, two companies in the Australian telecommunications sector. It describes the measurement and disclosure components of accounting policies for each class of PPE, comparing the policies used by Telstra and TPG. The report discusses whether all companies should be required to use identical accounting policies, highlighting the importance of harmonization in accounting standards for comparability and transparency in financial reporting. It concludes that while methods for measuring and recognizing assets may vary, identical accounting policies are desirable for enhancing the comparability and transparency of financial records, ultimately aiding investors and lenders in making informed economic decisions. Desklib offers a wealth of similar solved assignments and study resources for students.

BA302 - ACCOUNTING THEORY
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Executive summary:
The increase and development of the activities and the interests of the lenders, investors and the
companies becoming more and more globalized there is a need to develop and maintain the
globally accepted principles and policies of accounting which will ensure comparability and high
quality financial reporting framework to be adopted by the companies I the global scenario. The
acceptability of various policies identical with each other will allow for more transparency and
comparability in financial records while assisting in better economic decision of the investors.
The same will help in boosting the economic development of the particular industry and the
country. The type of quality financial reporting will ensure that the entities are domestically
comparable and proper standards have been followed in order to present the true and fair view of
the financial position of the enterprise in the current market scenario. The significance of the
accounting theory shall be realised by the companies while working on the accounting records of
company.
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Contents
Executive summary:........................................................................................................................2
Introduction:....................................................................................................................................4
a. Describe the measurement and disclosure components of policy for accounting for each
class of property, plant and equipment........................................................................................5
b. Compare the accounting policies for accounting for each class of property, plant and
equipment used by your selected/approved companies...............................................................8
c. Explain whether all companies should be required to use identical accounting policies?.....10
Conclusion:....................................................................................................................................12
References:....................................................................................................................................13
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Introduction:
The comparability of financial statement has been a major research topic in the literature review
related with the accounting theory and issues of the corporate world. The report is prepared to
understand the various concepts of acceptance of accounting policies and comparability of the
policies in the accounting framework of the country. For the same purpose the accounting
policies related with property, plant and equipment will be compared for two companies named
Telstra and TPG Group. Telstra and TPG have been operating in the telecommunication sector of
Australia. The description about each component of the asset will be given and the acceptability
of the fact that identical policies should be adopted in different companies will be given in this
report.
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a. Describe the measurement and disclosure components of policy for accounting for each
class of property, plant and equipment.
Telstra:
The property, plant and equipment for Telstra Group includes the construction in progress,
buildings, communication assets and other plants and equipment which are related with the
company assets. The property, plant and equipment are recorded at historical cost utilized for
purchasing the asset less accumulated depreciation and impairment (Telstra, 2017). The
measurement of cost will be based on the purchase price and adding all the cost incurred directly
for bringing the asset to the location and in the appropriate condition to be used in a favourable
manner. The depreciation relating to these assets are charged on the basis of straight line method
I the income statement of the company by considering the useful life of the asset. The disclosure
of these assets will be based on the applicable accounting standard implemented by the company
while presenting the financial statements (Warsono, 2017).
The description is provided as under:
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(Source: Telstra Limited, 2017)
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TPG Group:
The measurement of property, plant and equipment involved in the fixed assets of the company
TPG Group are measured and recorded at cost less the amount of accumulated depreciation d
impairment provided by the company in the past years. The cost will include all the amounts
required for bringing the asset into working condition (TPG, 2017). The depreciation has been
provided on these assets by utilizing the method appropriate as per the applicable accounting
policy. In the situation where the components of property, plant and equipment have their
different useful lives then they are considered and accounted separate items of property, plant
and equipment. The subsequent of these fixed assets are added to the cost of the asset when it is
probable that future economic benefits will accrue to the company consistently (Akdogan &
Ozturk, 2015). The description of various items is provided as under:
(Source: TPG Group Limited, 2017)
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b. Compare the accounting policies for accounting for each class of property, plant and
equipment used by your selected/approved companies.
Telstra:
By referring to the accounting policy adopted by the company and presented in the financial
statement it can be observed that the borrowing cost associated directly with the acquisition,
construction or production of the qualifying asset forming part of the property plant and
equipment has been capitalised and the other borrowing cost which does not results in increasing
the value of the asset has been recognized as an expense in the annual statements (Warsono,
2017). The useful lives of the components of property, plant and equipment has been estimated
by the management and it simply depends on the management judgement of the economic useful
life to be considered. If the depreciation on the useful life of the asset needs to be revised then
the same is appropriately modified in the financial records. Also the international trends and
industry trends are kept in mind while making these judgements (Telstra, 2017). The details
about the accounting policy adopted are presented below:
(Source: Telstra Limited, 2017)
TPG Group:
In case of TPG Group the borrowing cost which are directly attributable to the purchase,
construction and production of the qualifiable asset of company are recognized as part of the
borrowing cost of company. These borrowing costs are capitalized in each item of the property,
plant and equipment according to the nature of the asset. In a situation where the useful lives are
different for each asset the components are classified and disclosed separately in the financial
statements (Bublitz, et. al., 2015).
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The fair values which are considered for measuring the property, plant and equipment are based
on market prices prevailing in the industry for the similar items which are available and also on
the basis of depreciated replacement cost when the same is more appropriate. The deprecation
replacement cost represents the economic and functional obsolescence of the assets (Baxter,
2014). The estimations and judgements involved in determining the useful life of asset are
described as under:
Asset Useful life
Network infrastructure 3-25 years
Buildings 40 Years
Leasehold improvements 8 Years
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c. Explain whether all companies should be required to use identical accounting policies?
The harmonization of the accounting standards applicable in the current business scenario has
been one of the major goals of national and international accounting standards settlers. One of
the aim and objective of the International Accounting standard Board is to produce and develop a
single set of improved quality, recognizable and understandable accounting standards which
should be mandatory for the companies operating in the current business environment. In
reference to this objective IFRS has been introduced because the existing accounting standards
when adopted by the companies were not availing the comparability and transparency necessary
for investors. The features of comparability and transparency has been considered to be
signifio9cant and critical for smooth functioning of the integrated capital market in a country
(Baxter, 2014).
Harmonization in accounting terms and meaning can be defined as the application and
implementation of several methods of accounting practices which is required for integrating the
various accounting practices in the companies. In simple words it can be said that harmonization
will refer to the adoption of identical policies of accounting in different companies prevailing
and operating in the market or industry of a country. The harmonization increases when the
adoption of accounting policies used in the accounting increases and it decreases when the
adoption of these accounting policies decreases. The comparison between the two financial
statements can be effectively obtained while adopting harmonization in different companies
(Akdogan & Ozturk, 2015).
The same can only be achieved by decreasing the number of accounting policies while taking
care of the application of the accounting policies in the other countries. The legal regulations also
provide that there should be identical policies to be adopted by the company while measuring
and recognizing the values of their assets and liabilities in the financial statement of the
companies. The same will help in providing better economic and financial results of the
company helpful for the in visitors and lenders analysing the current situation for the company
and kiang efficient and effective market decision (Jones & Aiken, 2015). The identical policies
adopted in the companies will also ensure that the risk assessment made in the audit work
conducted by the company can be smoothly performed by identifying the applicable accounting
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policies on the company and comparing them appropriately with the comparable accounting
policy and reforms. Ten adoptions of identical policies of accounting in different companies will
also allow flexibility in comparing the organisations of different levels the factors associated
with this comparison can be equally understood (Bublitz, et. al., 2015).
Therefore it can be established that all the companies are required to adopt and follow the
identical set of accounting policies as suggested by the regulatory authority and department.
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Conclusion:
The above report concludes that the accounting theory in the current business scenario has been a
major issue of concern for the companies. The methods adopted by the companies for measuring
and recognizing assets of the company can be different for different companies. However it has
been observed that the accounting policies adopted should be identical in order to establish
comparability and transparency of accounting records as presented by the companies. The
identical policies as adopted by the companies will allow for more efficient and economic
decisions to be made by the different investors and lenders of the company.
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References:
 Akdogan, N., & Ozturk, C. (2015). A Country Specific Approach To IFRS Accounting
Policy Choice In The European, Australian And Turkish Context. Emerging Markets
Journal, 5(1), 60.
 Baxter, W. T. (2014). Accounting theory (Vol. 3). Routledge.
 Bublitz, B., Philipich, K., & Blatz, R. (2015). An Example of the Use of Research
Methods and Findings as an Experiential Learning Exercise in an Accounting Theory
Course. Journal of Instructional Pedagogies, 16.
 Christensen, H. B., Nikolaev, V. V., & WITTENBERG‐MOERMAN, R. E. G. I. N. A.
(2016). Accounting information in financial contracting: The incomplete contract theory
perspective. Journal of accounting research, 54(2), 397-435.
 Gaffikin, M. (2014). The Development of Accounting Theory (RLE Accounting):
Significant Contributors to Accounting Thought in the 20th Century. Routledge.
 Jones, S., & Aiken, M. (2015). Evolution of early practice descriptive theory in
accounting. The Routledge Companion to Financial Accounting Theory, 91.
 Oluwadare, E., & Samy, M. (2015). The relevance of Critical Accounting Theory (CAT)
to effectiveness of public financial accountability in emerging economies. Canadian
Social Science, vol. 11(9), pp. 20-25.
 Telstra Limited, (2017). Annual Report. Telstra Limited, Available at:
https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf-e/Annual-Report-
2017.PDF
 TPG Group Limited. (2017). Annual Report. TPG Group Limited, Available at:
https://www.tpg.com.au/about/investorrelations.php
 Warsono, S. (2017). The Accounting Equation and Revisiting the Theory of Double-
Entry Bookkeeping.
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