Financial Analysis: Transurban Holdings Accounting Policy Report

This report provides an in-depth analysis of the accounting policies applied by Transurban Holdings, focusing on the financial statement dated June 30, 2013. The report examines key aspects, including critical issues, accounting creativity, and the motivations behind the company's financial decisions. It explores various examples of creative accounting, such as biased estimations in lease incentives and available-for-sale financial assets, and the manipulation of timing transactions to influence financial outcomes. Furthermore, the report delves into the choice of accounting policies, highlighting instances where the company uses creative accounting to align with or deviate from standard practices. The analysis also investigates the underlying motivations, such as contractual and capital market considerations, driving these creative accounting behaviors. The report aims to provide a comprehensive understanding of how Transurban Holdings utilizes accounting policies to manage its financial reporting and achieve its objectives.

Running head: ACCOUNTING POLICY 1
ACCONTING POLICY REPORT
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Executive summary
From the accounting financial statement, the article is supposed to develop a report
focusing on the policy of the accounting applied by the Transurban Holdings. The article is dated
from 30th June 2013. The accounting article report has covered five primary elements. The
fundamental factors include critical current issues (Moatti, Ren, Anand & Dussauge 2015).
Accounting creativity and policies. Different accountants apply creativity with
accounting policies. These policies are not entirely broken or impaired. They are only adjusted to
fit the particular interest of the accountant and the accounting directors. The policy creativity
could also benefit the company.
The article also finds out the various kinds of motivations that could make a sustainable
company like Transaburn Holding Limited use accounting creativity. With multiple motives that
include; reputational damage, client privilege, and shareholders assent. This various reasons
make the report to narrow down and find out the exact motivation behind the company making
such a financial decision (Aribarg ET. Al 2018).
One of the motivations of the company accounting director is opportunistic behavior. The
article exploits the various ways in which the company accountants endorse opportunistic
behaviors. The report further tries to establish the multiple ways in which the opportunistic
behaviors can be remedied. This is so that they are not used anymore since they affect the
accounting standards of the company.
Introduction
Accounting standards are rules that guide how accounting directors measure, recognize
and find methods of recording financial information. Policymakers set these rules in partnership
with company's stakeholders.

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The financial statements, therefore, should conditionally follow these accounting
standards. Some of the standard accounting standards include; conditioning policy. These are the
central policy exploited by the accounting directors of Transaburn Holdings limited. The chosen
accounting policy, however, should be within the agreement to abide by the established
standards. For companies that do not abide by these policies, which is a very rare scenario, the
system allows for the implementation of an external strategy. The strategy, however, should
abide by all the accounting standards (Henderson et al 2018).
The three types of selections that can be based on three very fundamental policies. These
policies include; a choice based on accounting standard setters, the determination based on
accounting preparers of financial statements and creative accounting policy. The article exploits
the third policy. Use of creativity in accounting policies to benefit the financial statements being
reported for that particular fiscal year (Kullab & Yan 2018).
The company for the report
For this report, the chosen financial statement is from the Transurban Holding Limited.
Transurban Holding Management is in charge of managing and developing urban toll road
networks in Australia. It is a top 20 company on the ASX and has been in operation since 1996.
The financial statement is found at the following link.
https://www.transurban.com/content/dam/investor-centre/04/2013_Annual_report.pdf. The
report is dated 30 June 2013.
The company owns City Link in Melbourne. The City Link holds the major highways.
The company has operated in major Australian highways. Currently, the company has its stakes
in six tolled motorways in Sydney. The company is seeking to get to the cities of Brisbane
soon(Henderson, Peirson, Herbohn & Howieson 2015).

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The company engages in, network planning and forecasting as a way of getting more
contracts and doing more road networks. The deals can be from private owners or the
government. Secondly, the company engages in operations and customer management. There is
an operation that seeks to satisfy customers while getting the correct feedback. The feedback that
helps the company improve their operational scope.
The company has also advanced their technological systems by using smart products.
This move is to ensure that the company is attractable to the youth. The youth are easily attracted
to the exceptional products; therefore, the company takes advantage of this system as a way of
reaching such a population target (Gorm & Shklovski 2016).
The community also engages in CSRs as a way of helping the society. The company has
donated funds to orphanages and other institutions that favor the less privileged. This
philanthropic experience helps the company build the strong bond between it and the society.
The company makes revenues from four significant activities;
Toll and fee revenues. This is revenue collected from the road projects done by the
company.
Other road revenues. Revenue received from advertisements, rental, and avenues that are
related to the same.
Construction revenue. These are revenue that the company collects at the phase of
collecting an intangible asset. These assets are sold to third parties who are not part of the
shareholders of the company.
Management and business development revenue

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Revenue that accrues from managing the already constructed intangible assets (Alayemi
2015). These services are provided to the third parties who ask for the management and
development of these assets. The company has proved the worth to be used for this report. It is a
well-established company that serves as the customer and competes well in the market with
companies of the same caliber. These provide an opportunity for the report to do the in-depth
exploration of its financial statements and news.
Creative accounting example no 1: biased estimations and predictions.
Most accounting policies depend on the prediction of the directors (Kullab & Yan 2018).
The estimations help to determine the place where the company would be in the foreseeable
future. The evaluations can be done on any of the assets, market analysis, and any other future
elements. The prediction also involves prediction of items whose values depreciate and trying to
estimate what their costs would be in future. These estimations give room for accounting
creativity. The accounting directors can make an inter-period allocation of funds creatively. They
are also able to predict future market trends
From the financial report of Transurban Holdings limited as per the financial statement
dated 30th June 2013, the company provide leases of significant proportions. They predict a
lease incentive of the rental expense over a lease term on a straight-line basis. The straight base
assumes all the features that might accrue before the end of the lease period. The prediction is
biased since the accounting directors do not recognize any rewards and risk of ownership that
might be transferred to the lease later after the agreement years. The payments are only made on
operating leases. This is very risky for the company since it might work against their favor if a
hazardous situation happens suddenly. However, if nothing happens between the lease periods
the company will be the one that gains the highest. Therefore the move is to enable the

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stakeholder to see and recognize the consistency in revenue that accrues from the company lease
activities. This form of accounting biased estimation is a typical example of accounting policy
creativity by an accountant (Christensen 2016).
The second example of biased estimation from the financial statement is on available for
sale financial assets. At these points, the financial accountants assume the security measures of
the market. They predict the values that the assets might fetch without considering the market
price that each of these assets exactly brings. They include these assets in disposal investments
for the next 12 months without accessing the security of the market (Ali and Ahmed 2017).
.
The company will gain if the market trends remain the same. If the market trends raise
the profits margin are also likely to increase, and therefore the company will also learn. For the
case that the market trends go down for many reasons, it is expected that the company will make
losses from the assets. The estimation by the accounting director is therefore biased. It doesn’t
take into account the crucial consideration of market trends (Kim 2015). This is a perfect
example of accounting creativity used in making biased estimations for the Transurban holding
limited.
Creative accounting example no. 2: Timing transactions
The accounting directors might explore the accounting creativity on the timing policy
when they interfere with the timing procedures of particular business operations of the company.
These are done on the financial statement by not capturing specific dates to overlook the
essentialities of such timely information. They can interfere by bringing the time forward or
pushing to a later date.

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An example from the Trans burn company according to their financial statement is under
their financial liabilities. These liabilities are limited to trade and other payables, where the
company, through its economic insecurities develop a timeline of 30 days maximum to pay for
the business and other payable goods. The accounting standards allow for one financial year
before the transaction is done. The company sets this limits to avoid liabilities accruing to
become permanent debts. This is an example of accounting creativity that involves the
accounting directors adjusting the time limits for transactions (Hitt et al 2016).
The accounting director predicts the duration that the assets will take to depreciate. The
depreciation is calculated on a straight line basis to enable the director’s plan for the transaction
time that the asset will fetch the highest finances when sold (Vafeas & Vlittis 2015). They,
therefore, came with a figure of 3-15 years of useful life. This time estimation is very useful to
the company. There is an ideal example of accounting creativity employed by the accounting
directors of the Transurban Holdings Limited.
Creative accounting example no. 3: Choice of accounting policy to be used
The financial statement has also used creativity in the choice of policy to use in
displaying their financial report. Though the statement acknowledges being in line with the set
standards, the company recognize that they are in line with the established standards provided by
the AASB and the IRFS. They, however, use the accounting creativity to use particular actions
and neglect. The standard rule for hedging is that. The derivatives are designated, and fair value
is recorded in the income statement. Any changes in the reasonable amount hedged are
attributable to the hedged risk. The gained profit or any loss made relating to any affected
portion is recognized in the financial income statement. The accountant, however, realizes that
the derivatives of the company no longer meet the criteria for the hedge accounting

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procedure(Apostolou, Dorminey, Hassel & Rebele 2016).. At this point, the accountants use their
accounting creativity. They recalculate effective interest rates that amortize the profit or loss
made by the hedged item. This is built over a period where the maturity rate is considered. By so
doing the accountants shall have used the right accounting policy to determine a factor that was
missing from the financial statement. This is a perfect example of using accounting creativity
together with the accounting policy (Ali & Hirshleifer 2017).
All the discussed creativity have particular intentions behind them. The accounting
directors take these creative decisions with a motive behind it. Some of the reasons include;
capital market motivation, contractual motivation, and financial motivation. The report will
discuss two types of motivation, i.e., the contractual and capital motivation.
Motivation from contracts
The company engages in different contracts with clients, other organization and even
essential stakeholders (Yadav, Kumar & Bhatia 2014).
. They risk losing all this information if there is a faulty part of the financial statement.
When they see a proper financial report, it is likely that they will abide by the terms of the
contract. The accounting managers, therefore, would instead engage in high levels of creativity
while saving the deal. For example the case of calculating profit and loss interest rates to
determine the hedge accounting rates of hedge items. This move seeks to show the high-profit
rates that the hedge items have. The stakeholders are likely to view this as an incentive to engage
in new contracts with the company.
Capital market motivation
This is the intention that accrues for the need of the company to compete favorably in the
particular industry that it serves in. Accounting creativity on policy, therefore, for the company

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to be considered a top performing one in the industrial sector, specific information is forgone or
underexposed. For instance, the Transaburn Holding limited is one of the top 20 companies in
the ASX. To maintain this, it adjusts the time transaction from a minimum of 12 months to 30
days. This is mainly done so that, they support high profits. These high profits can be used in
raising the stakes of the company at the capital market levels. This is, therefore, a motivation
towards the use of creativity in accounting policy (Lail & Martin 2017).
Opportunistic behaviors
These are behaviors by particular managers. The intentional making of a decision that
doesn’t impact on the company or any of the shareholder but impacts on the manager’s life.
These accounting decisions do not in any way associate with critical stakeholders in the sector
but only a few or even one manager. For example in instances where a manager signs a contract
with a client who will be paying revenue to his account while the company offers the services to
the client (Dunn 2015).
There are two ways of engaging in this behavior; one that maximizes the benefits to the
individual and another that gives the advantage to the company that the manager works for. The
type of opportunistic behavior that benefits the company is referred to as efficiency motive
(Speckbacher 2017).
Example of opportunistic behavior from Transaburn Company
Effective motive
The interest rates swap by accounting manager
An example of opportunistic behavior by the accounting director in the Transburn
Company. The accountants convert the interest rates for particular loaning clients. The various

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interest rates are therefore saved from compounding loan interest to fixed rates. The client (in
this case the company) who has the loan can pay a fixed price and swap the agreed contract.
These behavior benefits the managers as the debts are reduced, and the interest that is supposed
to be paid by the company is used for individual benefits. The stakeholders are not made aware
of this loaning deal (Ho & Hensher 2016). Therefore the revenues of the company shoe rates that
pay the loaning company while the loan is calculated at a fixed rates.
Use of monitoring to control the opportunistic behavior
Many stages precedes the contracting process. The contracting process entails planning,
initiation (tender), award, contract, and implementation. These stages are explained in the
diagram below:
Monitoring can lower the chances of an opportunistic behavior happening. It involves
strict strategies by the company to reduce the chances of the norm happening again. The first

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strategy consists of the firm’s accountant reporting to the stakeholders after a particular interval
before writing a financial statement (Goshunovaa & Kirpikovb 2016).
The stakeholder will also be involved with being part of any external contracts signed
between the company and any other company that they are engaged in business with. Any
contracts signed should have one stakeholder as a signatory. The financial reports should be
audited by a private company before it is submitted to the relevant stakeholders. The stakeholder
will include any persons who are beneficiaries of the company (Phillips 2014).
When such designed monitoring is done, the company shall have solved the element of
opportunistic behavior happening once more. The monitoring solves the case of the sufficient
motive of the company swapping contracts.
Conclusion
From the report, we can derive that it is advantageous for the company to use accounting
creativity for different policies that work in favor of those firms. The types of accounting policies
that are helpful are also mentioned in the report. The ways that it can be constructive has also
been suggested. The report further suggests what can motivate an accounting director into using
accounting creativity on already existing policies. However, the problem only comes when the
opportunity is used for the malicious purpose. The false goal is what the report refers to as
opportunistic behavior. The involvement of opportunistic behavior doesn’t mean the end of the
accounting financial statement. Remedies including, monitoring and contracting can be used as
explained in the report (Phillips 2014).

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