Financial Analysis: Telstra Corporation's Accounting Policy Report

This report provides an in-depth analysis of the accounting policies employed by Telstra Corporation, focusing on its 2015 financial statements. It identifies and discusses various instances of creative accounting, including policy choices, biased estimations, and the timing of transactions. The report examines how these practices are used to potentially conceal certain financial issues and influence the perception of the company's performance. It explores the motivations behind these accounting choices, such as capital market and contractual motivations, and also addresses the opportunistic behaviors exhibited by the management. The report concludes by examining potential remedies for the identified opportunistic behaviors, providing a comprehensive overview of Telstra's accounting practices and their implications.

Running head: REPORT ON ACCOUNTING POLICY 1

REPORT ON ACCOUNTING POLICY 2
REPORT ON ACCONTING POLICY
Name
Institution

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REPORT ON ACCOUNTING POLICY
Executive summary of the report
The report is made up of five critical elements. The primary focus is discussing the
financial statement from Telstra Corporation Company (notes to the financial statements). Dated
30 June 2015. These financial statement has been used to derive various examples of accounting
creativity.
The statement shows how accounting creativity can be used with accounting policies.
The different types of creativity that have been endorsed by the report in drafting the financial
report. The effects that have been achieved by the company through employing the different
accounting creativity on the policy (Moatti, Ren, Anand & Dussauge 2015).
The paper also focuses on the various types of intentions that led the directors to endorse
the different kinds of accounting policies and accounting creativity that the used.
Lastly, the paper focuses on the various types of opportunistic behaviors used by the
statement in submitting the financial report. The multiple types remedy to the opportunistic
behavior exhibited by the accounting managers of the institution.

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Introduction
Different accounting policymakers develop accounting standards. The accounting
standards are rules that specify the type of measurement, recognition, and method that can be
used by reporting entities in preparing general financial statements (Aribarg ET. Al 2018).
The financial statement from which the reports are made should select the most
appropriate policy for use in preparation of the statement reports. In rare scenarios where the
company cannot follow the accounting policy standard due to a justified reason. The system
allows for a proper adoption strategy. The chosen strategy however, should be within the scope
of the standards set by the policymakers.
There are different choices of accounting standards that can be used. They include;
selection based on accounting standard setters, the determination by accounting preparers of
financial statements and creative accounting policy. The method exploited by this report is the
use of original accounting policy. The choice of creative accounting chosen is mostly done so
that it satisfies (Henderson et al 2018).
The chosen company for the report
The financial statement chosen for the report is from the description of TELSTRA
CORPORATION. The company is a telecommunication firm that provide mobile operations all
over the globe. It is currently the leading telecommunication company in Australia. It offers full
range of communication services to the customers. The following link provides access to their
financial statement (Kim 2015)
https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf%20D/telstra-annual-report-

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2015.pdf. The statement is dated 30 JUNE 2015. The company has been listed in the top 20 by
the ASX. The company is responsible for the planning, designing, engineering, maintenance and
restoration of network in information technology. The group is also responsible for innovations
that ensures services for new general opportunities (Kim 2015).
The company according to the financial statement invests its funds in IP based products
and services. Investing in IP based product connects more people to the service. These works in
favor of the company’s belief that connecting more people, the more opportunities for the
company (Kim 2015).
The revenue return by the firm is mainly achieved through selling communications
services to the customers. The bettering of their customer services has led to increased
performance index of the firm. The firm has shared a fair distribution of unitholders and
shareholders. The firm’s capital income over the past five years has been increasing with a slight
drop in 2013 but has since kept improving. As at the end of the financial year 2015, the company
had made a total net profit of 4.3b after tax (Kim 2015).
The report, therefore, is developed from a capable firm. The corporation competes fairly
in the market analysis. That is if compared to other firms of the same caliber (Kullab & Yan
2018).

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Creative accounting example no1: accounting policy choice
Accountants and accountant directors become creative in their choice of policies by
making changes to the already existing set standards. These create the opportunity for concealing
particular issues that the accountants don’t want to be noticed from their financial statements.
The concealment is done so that the inter-period of allocation is overviewed rather than a
permanent financial change. The financial statement of Telstra show various types of accounting
policy creativity. The standard accounting policy by AASB requires classification measurements
and de-recognition of financial assets and financial liabilities (Dunn 2015). This is supposed to
be introduced around the rules of hedge accounting and impairment. The directors have not used
this policy and instead used another procedure. The procedure used by the Telstra is the
recognition of measurements of the company’s financial instruments carried at fair value through
profit and loss determination (Dunn 2015). The company has therefore not applied the hedge
accounting policy. They have consequently used the impairment model. The main accounting
director of the Telstra company accepts this creativity and do not think this will have an impact
on the fund investment. The measurement are all held at fair value through determination of
profit and loss value. Their argument is based on the theory that; not using the hedge policy
while using the impairment model will not have the impact on the customer’s investment model
(Henderson, Peirson, Herbohn & Howieson 2015).
The other accounting policy that has been used creatively by the company is the standard
for the recognition of the company’s revenue. The revenue is supposed to cover contracts for
goods and services which include construction contracts. This standard is set so that when
control of service is transferred to a customer. The notion of the power replaces the existing risks

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and rewards. The Telstra Company has ignored using this policy. They have therefore focused on
income generating sources. They, therefore, used interest, dividends, distributions and financial
instruments held at the fair value as predicted (Dunn 2015).
They, therefore, do not expect the neglected use the revenue standards to have any
impacts on the company’s accounting policy. They also do not expect any severe effects on the
amounts recognized in the financial statements.
The accounting director, therefore, expects that no material impact will reflect in any of
the current or future reporting periods and therefore on foreseeable future transactions.
These two are typical examples of neglect of accounting policies by a proper established
company derived their financial report.
Creative accounting example no.2: biased estimations predictions
Some accounting policies depend on the forecasts that the directors make on future
events of a firm. These estimations include; calculations of depreciation rates. The depreciation
rates will depend on the useful life of an asset of the company. The residual value of the property
is also calculated over time to define the end of the useful life of the plant or asset. Such
estimates provide for considerable space for creativity in accounting. This type of creativity also
involves inter-period allocation of funds for different firm activities (Dunn 2015).
From the accounting report by (Telstra corporation note to the financial statement 30
JUNE 2015), the estimation by the directors on future sales of the financial instrument is a biased

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estimation. The price assigned to the financial instruments are based on cash and marketable
securities. The predictions have therefore overlooked certain features as explained below.
The main overlooked feature that makes the forecast biased changes in future contract
values. The financial statement ignore this serious issue with proves of settling the future
contracts with daily exchanges. The prediction, therefore, becomes biased since daily expenses
vary while contractual features might change concerning the agreement made (Gorm &
Shklovski 2016).
The other biased estimation by the fund company is changing that might occur based on
future indices on specified prices due to debt. The accounting director assumes that the financial
market will remain organized in the future. They, therefore, do not see the need to estimate the
changes of various contractual obligations of future dates for specified market prices. This is
biased as the financial market are at times very unpredictable and can change in any directions
over a brief period. With the change in commercial marketing, the specified prices can also shift
affecting the indices of the net paid amount that had already been estimated by the directors
(Alayemi 2015).
The accounting director has also made estimates on short-term financial instruments. The
amounts are due on brokers accounts payable and accrued expenses. The quantities estimated
produced fair since they are of immediate and short-term nature. Therefore the fund's company
accounting director must have made a reasonable prediction of these financial instruments.
Creative accounting example no.3: Timing of transactions.

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The preparers of accounting financial statements interfere with the timings of transactions
so that they relevantly hide information that they don’t want to affect the reputation of the Telstra
Corporation. This is to avoid the management from taking real economic actions by showing
how the impact of the result is rarely essential at this particular time of the report. Usually, the
objective of the timing of transaction method is to window dress the current period’s financial
statement. The financial statement have not applied the standard classification measurements on
financial assets and liabilities. The statement gives the duration an applicable duration of up to
January of 2016. The management is therefore considering that the measurement of assets and
liabilities will only be signed up to that time. They, therefore, prefer using, valuation through
assessment of profit and losses made by the firm (Kullab & Yan 2018).
The second example of time transactions is the windowing of revenue from the contract
with customers. Accounting directors of the company prefer that they use the little notion of risk
and reward. The official recognition of revenue that accrues from transferring goods or services
to a customer has been timely neglected. The accounting director recognizes that they will use
the accounting rules from that acknowledges the use and recognition of revenue beginning
January 2016 which is interfering with the timing of the transaction (Dunn 2015). The firm
accounting group, therefore, uses the accounting creativity to sideline the appropriate policy
(Christensen 2016).
Capital market motivation

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The accounting information from the financial statements is supposed to be used as
incentives to engage investors and the government. Accounting creativity, therefore, hides
essential information that will draw away the investors.
Several investors do not like reported company losses, therefore, prefer accrued profits.
The accounting directors, thus, sustain the performances that meet such analyst focus. These
must be the motivation behind the company in the example using the valuation of profit and loss
rather than the use of hedge accounting and impairment. This is because the method of hedge
accounting and impairment will impact on the funds' financial statement. It will show
measurements and de recognition of financial assets and financial liabilities. The standard if
applied might have an impact on the result that might explain the real results not favorable to
present to investors (Ali and Ahmed 2017).
The same motivation applies to the second accounting creativity (Kim 2015). The
accountant has not used the accounting standard of revenue. Both IRFS and AASB give the
revenues of the company if standardized concerning the regulation policy guide will expose the
reduced incomes of the company. These present the company not to compete favorably among
peer journal companies. The company, therefore, uses the creative accounting to compete
favorably in the current market strategies for other companies. These, thus, acts as a motivation
for the accounting creativity used by the accounting director of the firms (Hitt et al 2016).
Contractual motivation
The company would wish to retain their contracts with various stakeholder of the
company. They therefore prefer biasing financial information to entice the investors and

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corporate partners (Vafeas & Vlittis 2015). In the case of the Telstra Company, the accounting
creativity where the accounting directors use biased estimation is so that they achieve contractual
perspective. The biased evaluation is done so that, the profits predicted can be shown to investors
as a way of making them improve their contracts with the Telstra communication company.
Opportunistic behavior
Managers choose accounting policies for the firm. The accepted accounting policies are
supposed to maximize the benefits to the managers themselves at the expense other stakeholders.
For instance, the management may choose profit increasing accounting policies that will
maximize the compensation for managers while reducing the risk of dismissal for other potential
stakeholders (Apostolou, Dorminey, Hassel & Rebele 2016).
The act can, therefore, be done in two ways, one that makes the manager appear
opportunistic and another that maximizes the value of the business of the company. When the
business efficiency has been achieved through the accounting policy by the manager, the
opportunistic behavior is then referred to as efficiency motive.
From the accounting business report that we had there are these two types of
opportunistic behaviors;
Underinvestment. The funding company has the potential of investing in various kinds of
business. Since the benefits of these investors will accrue on the stakeholders and the debtholders
of the company. The managers chose not to invest in the various business and only invest in less

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than 5% of the revenues (Ali & Hirshleifer 2017). The investment is divided into five of the
banks. There is an example of the managing decision that has been used by the funds firm as a
way of endorsing opportunistic behavior (Yadav, Kumar & Bhatia 2014).
The other type of opportunistic behavior that has been used in benefit of the company.
This, therefore, qualifies it to be referred to as efficiency motive. Efficiency motive has
consequently been used in the funding company (Lail & Martin 2017). The firm has taken the
ordinary course of entering into a transaction with the various derivative financial instruments.
The risk is under looked by the managers so that the value change can be used in settling the
company’s debt. The company, therefore, invested in derivatives as an essential structure of the
company’s portfolio management. The derivatives invested in include; financial instrument
price, foreign exchange rate, index of prices or rates and credit rating (Dunn 2015).
The process of contracting in reducing the opportunistic behavior. (Under investment as
identified from the report)
The case of monitoring as the way of lowering opportunistic behavior will involve the
following steps. The firm will need to report to the debt and stakeholders at regular intervals. The
monitoring is usually concerned with creating covenants about any profits that might come from
the contract. The reports therefore from the financial statements are audited and sent to
stakeholders of the company. The stakeholders include all the trustees of the company. This will,
therefore, ensure that the managers take part in financial decisions but involve all the
stakeholders (Speckbacher 2017). These, thus, solve the element of opportunistic behavior
caused by under-investing of the company.