ACC303 Company Accounting: Telstra Consolidation Analysis Memorandum

This memorandum provides a comprehensive analysis of Telstra Group's financial performance and consolidation, prepared for the Board of Directors. It delves into the company's structure, including Telstra Corporation Limited and its controlled entities, and examines key aspects of its financial reporting for the year ended June 30, 2018. The analysis covers intra-group transactions, non-controlling interests, and compliance with corporate governance principles. The report highlights Telstra's commitment to sustainability, outlining key achievements and practices. It also scrutinizes the financial statements, including the current ratio, impairment assessments of goodwill and non-current assets, and sensitivity analyses of interest rate risk. Furthermore, the memorandum discusses material acquisitions and disposals, such as the formation of Telstra Ventures Fund II, LP, and concludes by providing valuable insights into the company's operations. The report uses references like Boučková (2016), Erel, Jang and Weisbach (2015), and others to support the analysis.

Running Head: COMPANY ACCOUNTING
Memorandum
To- Board of Directors
From-
CC-
Date- August 23, 2019
Subject- Introduction of Telstra and Consolidation Analysis
This memorandum is prepared with the aim of doing analysis of the company and the
analysis of the consolidation. This analysis will be of great help to assist the directors and
management of Telstra. Telstra Group is consist of Telstra Corporation Limited as well as it
entities that it controls at end of or during year end June 30, 2018. Telstra Corporation
Limited is the Australian telecommunications company that helps in building as well as
operating the telecommunications market voices and networks, internet access mobiles, pay
television as well as other products and services. It helps in providing the solutions of
telecommunications that includes network, data hosting, colocation, satellite services,
conferencing as well as cloud services (Müller 2014).
The financial report is comprised of the assets as well as liabilities of Telstra Company as
well as all its controlled entities at financial year-end as well as consolidated results and the
cash flow for year. The organization is known to be controlled entity in case when the
organization is being exposed to or having rights and to the variable return from the
involvement with company as well as having the ability for affecting those particular returns
by the power for directing the company’s activities (Hadi 2015). The effects of the intra-
group balances as well as transactions are eliminated in full from the consolidated financial
statements. The non-controlling interests in equity as well as results of the controlled entities

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are separately shown in the income statement, statements of the changes in equity, statements
of the financial position as well as statements of comprehensive income. Moreover, the
preparation of financial statements of controlled entities is done for the same period of
reporting as Telstra entity with the help of using the consistent policies of the accounting
(Seay 2014).
The company complies and is committed towards excellence in the corporate governance,
accountability as well as transparency. The company is also committed towards the long-term
performance as well as sustainability and it protects and enhances their shareholders as well
as stakeholders interests. Telstra complies with the corporate governance principles and
recommendations of ASX corporate governance council. However, in compliance with the
NZX Listing Rule of 5.1.7(d), the company notes that the corporate governance principles as
well as the recommendations of the ASX corporate governance council may differ materially
from the rules as well as principles of the corporate governance of NZX in corporate
governance bets practice code of NZX (Erel, Jang and Weisbach 2015).
The bigger picture of the sustainability report is provided separately in the company’s
website that provides the transparent overview of the performances and progress relating to
the strategy of sustainability over the year 2018. This report also provides the details of the
company undertake for supporting Sustainable Development of United Nations. The top most
sustainability practices by the company includes helping approx.1 million of the vulnerable
customers for staying connected, the score of sustainable engagement to the point of 74 in the
Survey of Employee Engagement and decrease of 24% in the emissions of greenhouse of gas
intensity from the financial year 2017 (Omar et al. 2014).
The commitment of the Audit committee is towards assisting Board of the company in the
integrity and reliability of the disclosures and reporting of finance, Group’s non-financial

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reporting and practices of disclosures practices. The members of audit and risk committee are
Nora L Scheinkestel, Margaret L Seale, Craig W Dunn and Russell A Higgins AO. The Audit
& Risk Committee provided the advice that during the financial year, the provisions of the
non-audit services are consistent with general standards of auditors’ independence that are
imposed. Moreover, the scope and nature of each non-audit types services provides does not
compromises on the requirements of the auditor independence of Act. Based on the advice
that is provided by committee of Audit & Risk, the directors of the company are very much
satisfied (Lee and Parker 2014).
The statement of the balance sheet of the company for the year-end 2018 shows that the
current asset is $7,077m and the current liabilities is $19,040m. Hence, the current ratio is
0.37. It means that the solvency position of the company is not good because Telstra is
having more current liabilities than its current assets (Gardini and Grossi 2014).
The impairment assessment of Telstra compares the CGU’s value of carrying with the
determined carrying value by using the calculation of ‘value to use’. The key assumptions
used in the calculations of value to use include discount rates, forecasts of cash flows as well
as terminal growth rates (Johansson, Hjelström and Hellman 2016).
The company has the overall impairment loss of $327 million that relates to the goodwill as
well as the other non-current assets from which amount of $273 million are related to the
Ooyala Holdings Group and it was recognized in category of ‘All Other’. The recognition of
the impairment losses is done in Income statements of the company’s period of reporting
when asset’s carrying amount exceeds from the amount of recoverable (Telstra.com.au.
2019). Hence, $243m charges of impairment was recognized in income statement in the other
expenses and recorded in the category of “All Other”. The remaining goodwill as well as
other non-current assets was writing down to zero. Moreover, in the assessment of the

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impairment, the company identifies CGU for which goodwill is assigned and it cannot be
more than the segment of operations. Moreover, the company has not changed their CGU
with the allocated goodwill for the year 2018. It is except for the integration of Telstra
Enterprise Australia Group with O2 Network Group for generating combined inflows of cash
for the Group, integration of Telstra Enterprise Australia Group with operations of the Pacnet
Internet (A) Pty Ltd. as well as Pacnet Services (A) Pty Ltd. It has resulted into reallocation
of the amount $150 million of the Goodwill from CGU of Telstra Enterprise International
Group to Telstra Enterprise Australia Group (Boučková 2016).
Telstra has performed the sensitivity analysis on the risk exposure of the interests’ rates of the
financial instrument as on 30 June, which shows that the impact of 10 per cent shift in the
rates of interest would be on the profit that is after profit and tax. This analysis is based on the
both long-term interest rates as well as short-term interest rates (Telstra.com.au. 2019).
The company is having no material acquisitions as well as disposals for the year 2018, which
is except for company Telstra Media Pty Ltd. that held the Group’s investments in
contributions of the investments in Telstra Ventures as well as Foxtel Joint Ventures to the
Telstra Ventures Fund II, LP. Telstra has entered into the agreement on June 29, 2018 with
the HarbourVest for forming a new fund that is Telstra Ventures Fund II, LP (Telstra.com.au.
2019. As the part of the agreement, Telstra has contribute the majority of investments of
Telstra Ventures Pty into the new fund, which has resulted in $25 million recognition of fair
value gain in the other income and the recognition of $53 million fair value in the other
comprehensive income (Kulikova, Akhmedzyanova and Ivanovskaya 2016).
Hence, this memo includes the analysis of the operations of the Telstra Group and its
consolidations. The additional information is provided in the appendix of memo. This memo
would be useful for the board of director having insights of important issues of the company.

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Reference
Boučková, M., 2016. Quality of disclosed information with emphasis on goodwill
impairment. European Financial and Accounting Journal, 11(2), pp.37-52.
Erel, I., Jang, Y. and Weisbach, M.S., 2015. Do acquisitions relieve target firms’ financial
constraints?. The Journal of Finance, 70(1), pp.289-328.
Gardini, S. and Grossi, G., 2014. Voluntary adoption of the consolidated financial statement
and fair value accounting by Italian local governments. Journal of Public Budgeting,
Accounting & Financial Management, 26(2), pp.313-344.
Hadi, K.T., 2015. Consolidated financial statements.
Johansson, S.E., Hjelström, T. and Hellman, N., 2016. Accounting for goodwill under IFRS:
A critical analysis. Journal of international accounting, auditing and taxation, 27, pp.13-25.
Kulikova, L.I., Akhmedzyanova, F.N. and Ivanovskaya, A.V., 2016. Ways of assets value
misstatement that companies use when making financial statements. International Business
Management, 10(24), pp.5705-5709.
Lee, T.A. and Parker, R.H. eds., 2014. Evolution of Corporate Financial Reporting (RLE
Accounting). Routledge.
Müller, V.O., 2014. The impact of IFRS adoption on the quality of consolidated financial
reporting. Procedia-Social and Behavioral Sciences, 109, pp.976-982.
Omar, N., Koya, R.K., Sanusi, Z.M. and Shafie, N.A., 2014. Financial statement fraud: A
case examination using Beneish model and ratio analysis. International Journal of Trade,
Economics and Finance, 5(2), p.184.

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Seay, S.S., 2014. The economic impact of IFRS-a financial analysis perspective. Academy of
Accounting and Financial Studies Journal, 18(2), p.119.
Telstra.com.au. 2019. [online] Available at:
https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf%20F/2018-Annual-
Report-singlepages.pdf [Accessed 23 Aug. 2019].

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Appendix

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