Comprehensive Analysis: Auditor Reporting at Telstra, Australia

This report provides an in-depth analysis of auditor reporting practices within Telstra Company in Australia, based on its 2018 annual report. It examines auditor independence compliance, non-audit conducts, auditor remuneration, and key audit matters such as revenue recognition, dependence on automated controls, goodwill impairment, and asset capitalization. The report also describes the audit committee's responsibilities, evaluates Telstra's audit opinion, and discusses the accountability differences between directors and management. Furthermore, it identifies material-based activities, assesses the effectiveness of Telstra's material information, and highlights under-reported or undisclosed information. The analysis draws upon the Corporations Act 2001, Australian Auditing Standards, and APES 110 to evaluate Telstra's adherence to regulatory and ethical standards in financial reporting.

Running head: AUDITOR REPORTING IN AUSTRALIA
Auditor Reporting in Australia
Name of the University:
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Executive Summary
In highly competitive business environment, some strategies are required to be
implemented by the audit committee for ensuring the audit report quality and improving it
in the upcoming years. The paper revealed that the audit partner of Telstra reported that
the audit committee of the company has clear framework for decision making along with
accountability all through the business. It was also gathered that “Corporations Act 2001,
Australian Auditing Standards along with APES 110” has been followed by the company in
explaining all its audit matters based on which important steps are taken by the company in
decreasing it. Moreover, the directors are also observed to be satisfied with the advices
offered by its audit partner based on which they take decisions on attaining the auditor’s
independence requirements. This also considers taking decisions on auditors’ commitments
and remuneration, contingencies and commitments along with developing the parent
company disclosures.

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Table of Contents
1. Introduction............................................................................................................................3
2. Requirements of Auditors Independence Compliance..........................................................3
3. Non-audit Conducts...............................................................................................................4
4. Auditor Renumeration Analysis.............................................................................................5
5. Key Audit Matters of Telstra..................................................................................................6
6. Audit Committee Responsibility Description.........................................................................8
7. Evaluation of Telstra Audit Opinion.......................................................................................8
8. Difference in Accountability between Directors and Management......................................9
9. Material Based Activities of Telstra.......................................................................................9
10. Effectives of Telstra Company’s Material Information......................................................10
11. Material Information that is Under-Reported and Not Disclosed.....................................11
12. Follow-Up Questions for Auditors.....................................................................................11
13. Conclusion..........................................................................................................................12
References................................................................................................................................13

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1. Introduction
The auditor of any organization has the responsibility of analyzing the misstatement
risk and auditing also serves as a vital business function which involves analysis of
documentation as well as evidence regarding transaction and economic conducts of the
company (Backof, Bamber and Carpenter 2016). The data extracted from the auditor’s
report is used by the stakeholders of the company for making several business decisions
making. Moreover, in highly competitive business environment, some strategies are
required to be implemented by the audit committee for ensuring the audit report quality
and improving it in the upcoming years. Auditing in the companies has the responsibility of
offering comfort regarding management accounts accuracy along with identifying the
systematic errors that can take place in representation of material information (Carson,
Fargher and Zhang 2016). The process by means of which audit in an organization is carried
out explains the challenges related with internal controls and reporting processes followed
within the companies. Focused on such statement, the objective of the current report is to
analyses the current annual report for Telstra Company related with several audit factors
related with the company’s reporting. Considering the same, it is also extracted from the
annual report that Ernst and Young is the audit partner of the organization selected for this
report.
2. Requirements of Auditors Independence Compliance
From analyzing the annual report of Telstra, it is gathered that the board of directs
confirmed that certain guidelines within ‘’Accounting Professional and Ethical Standards
Board’s APES 110 Code of Ethics for Professional Accountants’’ and “Corporations Act 2001”
are the necessary financial reporting standards followed by Ernst and Young being the audit

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patner of the company (Crockett and Ali 2015). In addition, annual report for the year 2018
of Telstra indicated that the Declaration of Auditor’s Independence to the directors of the
company forms an aspect of the annual report abiding by the guidelines represented in
Australian Accounting Standards. In addition, Auditor’s Independence Declaration indicates
that no contraventions of the independence requirements of “Corporations Act 2001” are
maintained in consideration to audit (Fernandez-Feijoo, Romero and Ruiz 2018). Certain
ethical requirements concerning auditor’s independence are maintained and no
compromise regarding such requirements is observed. Independence requirements also
includes the provision regarding non-audit services policy which clearly recognizes restricted
services along with periodic monitoring of “Audit and Risk Committee”.
3. Non-audit Conducts
From analyzing the annual report of Telstra Company in the year 2018, Ernst and
Young has been used on assignments additional to the statutory audit duties. Details
regarding the amounts paid or payable for non-audit as well as audit services offered during
the year are explained in the “notes 7.2 within the 2018 financial statements” (Robert
Knechel, Vanstraelen and Zerni 2015). The directors are satisfied relied on advice offered by
the “Audit and Risk Committee” that the provision related with the non-audit services is
consistent ith the services of external auditors. Moreover, the non-audit services related
with the external auditors’ policy clearly explains prohibited services that encompass
reviewing or auditing the own work of the auditors. Moreover, the staff acts in a managerial
or decision-making capacity for Telstra. The directors of Telstra are observed to be satisfied
relied on advice offered by the “Audit and Risk Committee” that the provision regarding the
non-audit services is consistent wit the general standards of independence for the auditors

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imposed by the act (Simnett and Huggins 2015). In consideration to save the auditors
independence requirements of the act.
4. Auditor Renumeration Analysis
The analysis of auditors renumeration for Telstra Company from its annual report
indicated that the renumeration philosophy of the company for its auditors is focused on
linking financial rewards directly with the employee contributions along with organizational
performance. The audit fees experienced by the company in the year 2017 was $8.001
million and in the year 2018 is $ 9.001 million that was paid by the company to its audit
partner Ernst and Young (Tepalagul and Lin 2015). Such audit remuneration experienced by
the company is relied on the audit and reviewing performance of the financial reports along
with other assurance engagements. Such services covered within the Auditor’s
remuneration consideration of the company incudes regulatory financial assurance services,
services over prospectuses of debt raising, certain internal control evaluations, accounting
advices offered along with audit services related with controlled entities of Telstra. The
overall renumeration paid to Ernst and Young by the company is segmented between audit
based and non-audit based services offered by the audit partner (Tepalagul and Lin 2015).
Figure 1: Auditor’s Remuneration Considered by Telstra in 2017 and 2018
(Source: Tepalagul and Lin 2015)

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5. Key Audit Matters of Telstra
Through analyzing the annual report of Telstra Company for the year 2018, certain
“Key Audit Matters” has been recognized though abiding by “General Independence
Standard” and “Corporations Act 2001” (Tepalagul and Lin 2015). Such matters are
explained below:
 Revenue Recognition- There are three major areas within which the company
implements considerable judgement associated with revenue recognition. These
include accounting for new plans and products, large network application services
along with NBN revenue (Robert Knechel, Vanstraelen and Zerni 2015). The accuracy
regarding completeness of amounts considered as revenue serves as an inherent
industry risk because of billing systems complexity. In dealing with such risks related
with revenue recognition, the efficiency of the key controls is analyzed with
considering capture and revenue transactions measurement all through material
revenue streams. The process along with controls regarding evaluation and capture
of the revenue recognition timing for new plans and products is taken inti account by
Telstra.
 Dependence on Automated Controls and Processes- A major part of the company’s
financial processes is increasingly dependable on IT systems with automated controls
and processes over capturing, recording along with valuing transactions (Robert
Knechel, Vanstraelen and Zerni 2015). This serves as the major aspect of the
company’s audit because of mix of manual along with automated controls, several
internal along with outsourced support arrangements. This also includes complexity
associated with billing systems that leads to recognition of revenue. To deal with the
uncertainties related with maintainice and regular advancement requirements of its

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IT systems, Telstra has appointed group of specialists these regularly enhance the IT
systems and implement new ones based on the requirement of audit.
 Goodwill and Intangible Assets Impairment- Considering the industry’s dynamic
nature within which the company operates its business, there exist an uncertainty
regarding existence of material impairment to goodwill, certain intangible asset
balances along with certain non-current assets (Robert Knechel, Vanstraelen and
Zerni 2015). Determination regarding impairment associated with asset or Cash
Generating Unit (CGU) encompass considerable judgment regarding the upcoming
cash flows along with necessary plans for such assets of Telstra. To deal with such
risk, assessment of the reasonableness of the board approved cash flow projections
implied within impairment model along with historical cash flow estimations of the
company is considered regularly. The company’s assessment regarding impairment
indicators or reversal is also evaluated in order to effectively compute recoverable
amount for all the CGU’s.
 Capitalization along with Asset Lives- There are several areas in which judgment has
an effect on the carrying value focused on property, plant and equipment along with
software intangible assets along with respective amortization profiles and
deprecation (Robert Knechel, Vanstraelen and Zerni 2015). Changes within the
judgements have a considerable effect on the results associated with the group. In
comparison, this was deemed to be considered as key audit matter. The audit
processes that are maintained by the company is focused on addressing any concern
related with capitalization of the asset lives. The company’s assessment regarding
impairment indicators or reversal is also evaluated in order to effectively compute
recoverable amount for all the CGU’s.

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6. Audit Committee Responsibility Description
From analysis of the Telstra Company’s annual report it has been gathered that Craig
W Dunn, Russell A Higgins AO and Nora L Scheinkestel were appointed as the non-executive
director of the company. It was also reported by Ernst and Young that the provision related
with the non-audit services in the company is supervised by the Audit and Risk Committee
through periodic reporting to the committee (Simnett and Huggins 2015). The audit and risk
committee are set in Telstra those are committed towards maintaining excellence in
corporate governance, accountability and transparency. The audit partner of Telstra
reported that the audit committee of the company has clear framework for decision making
along with accountability all through the business. The committee also offers suitable
guidance regarding the accounting standards behavior expected from the committee. Audit
committee of Telstra is observed to comply with the “ASX Corporate Governance Principles
and Recommendations” (Simnett and Huggins 2015).
7. Evaluation of Telstra Audit Opinion
The audit report developed by Ernst and Young for Telstra also signified that the
company has developed its renumeration report in accordance with “Section 300A of 2001
Corporations Act” (Backof, Bamber and Carpenter 2016). The audit partner of the company
indicted that the remuneration philosophy is relied on associating financial rewards directly
with the contributions of employees along with organizational performance. To understand
the association between remuneration, organization’s strategy and Telstra’s performance,
the remuneration report of the organization focusses on offering detailed overview of
additional voluntary disclosures and summary of governance practices. Ernst and Young also
explained that the reporting of the company’s financial statements is as per “Australian

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Accounting Standards Board (AASB 15)” along with other authoritative pronouncements of
“International Financial Reporting Standards (IFRS)” (Backof, Bamber and Carpenter 2016).
8. Difference in Accountability between Directors and Management
The annual report of Telstra for the year 2018 indicated that “Risk and Audit
Committee” has been formed by the management of Telstra those follow suitable financial
reporting procedures though abiding by Australian Accounting Standards. The board of the
director’s responsibilities of the company is focused on reporting financial statements of the
company based on its statutory audit details (Back of, Bamber and Carpenter 2016). The
directors are also observed to be satisfied with the advices offered by its audit partner asked
on which they take decisions on attaining the auditor’s independence requirements and
taking decisions on auditor’s commitments and remuneration, contingencies and
commitments along with developing the parent company disclosures. Moreover, the
management of the company focusses on offering true and fair financial position view of
Telstra Group for the year end of 30 June 2018 (Carson, Fargher and Zhang 2016). The
auditor of Telstra that is Ernst and Young is deemed to be responsible in offering suitable
assurance associated with financial statements preparation which does not take into
consideration any material misstatements. The responsibility of the auditor “Ernst and
Young” encompass suitable representation of the financial report, maintaining internal
control along with analyzing and addressing any type of material misstatements taking place
in Telstra.
9. Material Based Activities of Telstra
Certain effective material-based events have been observed from the annual reports
of Telstra for the year 2018. Considering the same, it has been extracted from the financial

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report of the company that certain exceptional items such as acquisitions, non-income and
divestments along with accounting treatment of swap lease income is observed to have
increased material impacts to the company’s overall income outcomes. The board also
reviews all the exceptional material items must be included within the results of purposes of
attaining an EVP outcome. The overall dividend declared by the company for the year 2018
of 22 cents per share (Carson, Fargher and Zhang 2016). Moreover, in the current year, the
board has also announced a fully franked yearly dividend of 11 cents per share which
encompass 15 cents as ordinary dividend and 7 cents as special dividend in alignment with
the dividend policy followed by Telstra (Carson, Fargher and Zhang 2016).
10. Effectives of Telstra Company’s Material Information
Ernst and Young has provided a report on the material information effectiveness of
Telstra Company that explained the areas in which the company has expertise in developing
a significant impact along with technology-based solutions in dealing with societal
challenges. Moreover, “Corporations Act 2001, Australian Auditing Standards along with
APES 110” has been followed by the company in explaining all its audit matters based on
which important steps are taken by the company in decreasing it (Crockett and Ali 2015).
The audit partner of Telstra is focused on explaining all the important material facts related
in case of Telstra. The board approved material changes within the corporate plan along
with analyzing material regulatory or legislator changes. The return is subject to unexpected
material events anticipates that the migration is broadly in aligns with the capital
management framework. The deferred benefit plan indicates the company’s material
information is focused on analyzing the materiality factors that impacts balances in the
reporting period of 2018 (Crockett and Ali 2015).

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11. Material Information that is Under-Reported and Not Disclosed
From evaluating the annual report of Telstra, it has been gathered that Ernst and
Young has carried out an effective audit reporting through abiding by the necessary audit
and compliance standards. It is also observed from the audit report prepared for the
company that certain material risks for the company incudes material exposure to
environmental, economic along with uncetainities related with social and business concerns
(Crockett and Ali 2015). During the financial year of 2018, no material impact as observed on
the company’s profit or loss leading from inefficiencies of discontinuing hedge accounting
and cash flow hedges. Material events do not lead to unintended windfall losses or gains.
Due to effective auditing conducted by the audit committee no material impacts those are
under-reported or non-disclosed took place in Telstra (Crockett and Ali 2015).
12. Follow-Up Questions for Auditors
The questions those can be asked to the auditors of Telstra on the conference
meeting within the Telstra those have been responsible for analyzing the financial
statements of the company (Simnett and Huggins 2015). The decided follow-up questions
for the company or for its auditor Ernst and Young is indicated under:
 Are there any external auditors responsible for developing audit report for the
company?
 What are the responsibilities of Telstra’s planned audit process?
 Can you find out any new issues that can take place within the audit process for the
year 2018?
 Can you analyses the process of risk evaluation conducted by Telstra’s company’s
auditors?

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 Is the management of Telstra accountable for explaining accounting along with
auditing concerns related with previous year’s annual report?
 What are the improvement chances for Telstra in decreasing the spent time by
auditor in carrying out process of audit?
13. Conclusion
The objective of the current report was to analyze the current annual report for
Telstra Company related with several audit factors related with the company’s reporting. It
is gathered from the paper that certain ethical requirements concerning auditor’s
independence are maintained and no compromise regarding such requirements is observed.
Independence requirements also includes the provision regarding non-audit services policy
which clearly recognizes restricted services along with periodic monitoring of “Audit and
Risk Committee”. It was also concluded that the audit partner of the company indicated that
the remuneration philosophy is relied on associating financial rewards directly with the
contributions of employees along with organizational performance.

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References
Backof, A.G., Bamber, E.M. and Carpenter, T.D., 2016. Do auditor judgment frameworks
help in constraining aggressive reporting? Evidence under more precise and less precise
accounting standards. Accounting, Organizations and Society, 51, pp.1-11.
Carson, E., Fargher, N. and Zhang, Y., 2016. Trends in auditor reporting in Australia: a
synthesis and opportunities for research. Australian Accounting Review, 26(3), pp.226-242.
Crockett, M. and Ali, M.J., 2015. Auditor independence and accounting conservatism:
Evidence from Australia following the corporate law economic reform
program. International Journal of Accounting & Information Management, 23(1), pp.80-104.
Fernandez-Feijoo, B., Romero, S. and Ruiz, S., 2018. Financial Auditor and Sustainability
Reporting: Does it matter?. Corporate Social Responsibility and Environmental
Management, 25(3), pp.209-224.
Robert Knechel, W., Vanstraelen, A. and Zerni, M., 2015. Does the identity of engagement
partners matter? An analysis of audit partner reporting decisions. Contemporary Accounting
Research, 32(4), pp.1443-1478.
Simnett, R. and Huggins, A.L., 2015. Integrated reporting and assurance: where can research
add value?. Sustainability Accounting, Management and Policy Journal, 6(1), pp.29-53.
Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature
review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.