Accounting Theory Report: TPG Telecom Financial Analysis, 2017

This report provides a detailed analysis of TPG Telecom's accounting practices, focusing on its compliance with the AASB and IFRS frameworks. It examines the company's financial statements, accounting policies, and estimates, comparing them to those of a major competitor, Telstra. The report inv...Read More

Accounting
Theory

1
By student name
Professor
University
Date: 20 September , 2017.
1 | P a g e

2
Executive summary
Preparation and presentation of the financial statements of the company as per specific conceptual
framework requirements is an important part of the overall accounting scenario and all the companies
are required to follow the same. In this report we will analyze the accounting policies and accounting
assumptions of one of the major telecommunication companies of Australia and explore whether the
books of the company are prepared based on standard regulation. Different aspects of the same will be
discussed In detail and proper recommendation will be given by which the company may improve its
overall all operations. The company in picture is TPG Telecom which one of the biggest
telecommunication company in Australia
2 | P a g e

3
Contents
Introduction…………………………………………………………………...3
Section b…..…………………………………………………………………...3
Section c…..…………………………………………………………………....6
Section d…..…………………………………………………………………...9
Conclusion………………………………………………………………………11
Refrences.....………………………………………………………………......12
3 | P a g e

4
Introduction
The TPG Telecom Company is the leading telecommunication company in Australia that provides
variety of services in this field which include various mobile and dth services. It has its own mobile
network and is the second largest supplier of internet in Australia. On the basis of the annual reports of
the company the company is performing extremely well, given its high revenue and market share. The
company is also trying to expand in other areas of the world and improve its annual position (Abbott &
Kantor, 2017). It is trying to make its presence in the international market with its high data services and
efficient broad band network. The company has large number of subsidiaries that provides bundle
services to large number of companies. The accounting policies and the estimates of the company will
be discussed in brief in this report.
There are various accounting standard and provisions that has been set as per the conceptual
framework network that has been prepared by the regulatory authorities to help the company in the
preparation and presentation of their financial statements. The most important of these are US GAAP
and IFRS that has large number of provisions that the company requires to follow. The conceptual
framework is a conceptual tool that is used by companies to take conceptual decisions and make
rational choices. The IFRS is a global framework that is trying to unify the accounting policies around the
world so that all the companies follow the same method and it helps in removing barriers between the
nations (Alexander, 2016). The main purpose of these accounting policies and programs is to provide a
system of logics and ideas that can be used to provide a consistent set of various rules and standards. It
helps in defining the nature of the financial statements and sets specific rules for the same. In the given
case we will analyze the annual report of the stated company.
Section b
i. The consolidated statements of the company are prepared as per the AASB 101 conceptual
framework of accounting which has been issued by the Australian Accounting Standard Board .
The books of the company are prepared as per the IFRS and the same has been followed very
accurately. All the notes of account are accurate and proper disclosures has been given by the
company. The accounting policies of the firm are stated in the report of the director, an extract
of the same is attached below.
4 | P a g e

5
ii) There is required amount of flexibility in the preparation of the financial statements. However in case
of any deviations from the said standards the companies need to give proper disclosure in their notes to
accounts
iii) IFRS is a global accounting framework of accounting that is followed by large number of competitors
of the company like Vodafone and Telstra. However in case of TGP Telecom the company follows the
rules that has been set as per the AASB in compliance with the IFRS and a note for the same is attached.
The main guiding framework is of the AASB.
iv) One of the rival companies of the company is Telstra, that operates in the same line of business. It is
the largest telecommunications company in Australia that provides variety of services. The company has
the largest market share in this industry given its strong equity position. The books of accounts of the
company are prepared as per the IFRS network and corporations and the same is declared in the annual
reports of the company.
5 | P a g e

6
Both the companies are complying with different accounting frameworks , however in case of TGP
Telecom IFRS is followed for the preparation of the annual statements and proper disclosures in regard
to the same has been given.
As per the ration analysis of both the companies on the basis of the information that is provided in their
annual reports it can be said that the liquidity position of Telstra is better than TGP, as the overall
current ratio and quick ratio of the company is very favourable (Burke & Clark, 2016). The shareholders
of the TGP company are in a better position than Telstra, as the overall return on assets and return on
equity of the company is very string that shows that the shareholders are gaining from the company. In
case of Telstra the retun on equity and assets are not strong thus this shows that the company is not
earning enough to satisfy the needs of the shareholders. Howveer it can be said that the Telstra
company is having better position financially given its strong market presence on the basis of its overall
trading of equity. On the basis of the policies that are followed by the companies in the preperationa nd
presnetaion of their annual reports. It can be said that Telstra has more stronger accounting framework
and better disclosure and presentation is followed by the company (Chariri, 2017). Proper assumptions
have been taken and the same is stated in the annual report. In case of TGP the company is following
the AASB Framework which is as per the Australian rules and standards , hence the company lacks the
touch of the global essence. Moreover it can be seen that there are no proper disclosure given and the
overall prepeartion and presnetaion of the statements is not upto the mark as desired of such a gbig
6 | P a g e

7
company. In comparison of both the company, the policies of Telstra are more stronger than the TGP
Telecom company (Crosby & Henneberry, 2016).
iv) Yes I agree with the polices and estimates. No matter what accounting framework does the
companies follow they need to comply with all the relevant accounting assumptions and proper
disclosures must be given in their notes to accounts.
v) The accountings strategy that has been followed by the company is revealing as the company ahs
sated briefly about the same in their annual reports and has also given relevant disclosures in respect to
it. The auditors of the company have given a green flag to the company in comparison to the overall
statements that are prepared by them and the same has been stated in their audit reports. An extract of
the same is attached.
vi) There are no such red flags that are visible in the accounting statements and the annual reports. For
each of the figure that is there proper disclosures have been given very briefly and the same has been
stated in the annual reports. So there is no visible activity that raises a question on the overall
functionality of the company or the rules that has been followed by them. Red flags occur when the
management of the company indulges in false practices to earn more revenue in which their personal
motives are involved (Fay & Negangard, 2017).
7 | P a g e

8
Section c
i)There are many pressures that exist on these companies that influence their overall decisions
and actions. The major political influences that affect the functioning of the company and their overall
operations are that there are a lot of regulations that are very complex in nature and that the companies
have to comply with. The major issues are present in the various trade barriers, complex networks,
national radio spectrums that affect the position of these companies in the market (Fay & Negangard,
2017). The companies need to comply with all these and in any case if they fail they will be penalized.
The only political factors that are working in the favor of these companies are deregulation and
privatization. Deregulation and privatization helps the company to avoid unwanted political interference
and hence help them in doing their work as per their own wish (Prasad & Chand, 2017).
ii) Every company makes certain accounting assumptions while prepration of their financial
ststemnts and gives the relevant disclosures for the same. The companies needs to prove the main logic
behind these estimate and how it is reasonable for them (Dichev, 2017). The same thought must be
supported by the auditors and it should be in line with the guidng conceptual framework that the
company is following. In any case if the company has made certain estimates but no disclosure is given
in regard to the same than the company will be held liable and in the long run they have to justify their
action. In case of TGP the company has made certain assumptions and gave relevant disclosures for the
same. These are mianly stated in the notes to account of the company, relevant disclosures in regard to
the same has been in it.
8 | P a g e

9
iii) It is very important for these organizations to properly state the various facts and figures related to
the annual accounts. In any case if the company make any disclosures but there is no proper basis for
the same then the company needs to prove the given statements (Chiapello, 2017). It can also be seen
that in all these cases if the company is found guilty to falsifying the annual reports strict actions will be
taken against it. Hence it is stated that these companies must properly check the facts and figures
before making such disclosures and must given proper justification to all the various assumptions that
were made by them (Given, 2016).
9 | P a g e

10
Section d. Investigative report on the Managers’ Accounting Strategy and Reporting Strategy
The managers of the company are the main people who are given the responsibility to supervise the
overall formulation and presentation of the annual reports of the company. In case the auditors find any
issues then the managers need to help the auditors in solving the same. In the given case we will
prepare a report on the overall actions of the managers and the necessary steps that can be taken by
them
Section 1: key accounting policies
In the given company the books of the company are prepared as the AASB framework in compliance
with the IFRS in the preparation and presentation of the annual reports of the company. Relevant
disclosures have been given in the various notes to account and the company has also attached proper
declaration for all the actions that has been taken by them. In any case if the company malpractices than
the management of the company will be held liable (Guragai, et al., 2017). The managers must see that
all the disclosures are clear and price and in any case if they notice any red flags immediate actions must
be taken for the same. Proper presentation and disclosure is very important for the overall success of
the company (Crosby & Henneberry, 2016).
Section 2: Assess Accounting Flexibility
In case the managers of the company are not able to follow a single rule for the preparation of the
consolidated statements there are high chances that the information will be distorted. It will lead to lack
of uniformity in the accounts over the years, and the companies may not be able to follow a single path
for their analysis (Han, et al., 2017). It is thus important that the managers do not indulge in large
amount of fluctuations, a single accounting framework must be followed over the years that makes the
overall accounting clear and free from all kind of distortions and will be helpful for the investors also as
they will be able to make necessary comparisons while taking important decisions in regard to the
company and its operations.
Section 3: Evaluation of the Accounting Strategies
If there is high amount of flexibility involved in the overall preparation of the financial statements than
that might lead to huge amount of distortions and sometimes it is good also because the managers will
10 | P a g e

11
be able to convey such economic decisions that they otherwise might not be able to convey to people.
This is where the decision making abilities of the management comes into play and can be helpful in the
long run. It is important that the mangers use the standards that are as per the industry guidelines and
norms (Kew & Stredwick, 2017). It is important that there must not be any personal motives involved in
case of the managers. In case the management is considering changes in the accounting policies then
there must be basis for the same and the rationality must be established. It must be seen whether
certain transactions have been structured to achieve particular objectives of the company. Like in case
of TGP we see that the consolidated financial statements the same has been prepared on the basis of
historical cost, except the all over assets and the liabilities that have been valued on the basis of the fair
value. This is done to make the correct valuation of the assets of the company (Laursen & Thorlund,
2016).
Section 4: Evaluation of the Quality of disclosure
It is important for the mangers of the company to see whether all the disclosures that has been given is
in line with the accounting standards that has been followed. In case of TGP all the necessary disclosures
are adequate and price. They are sufficient with the current norms. The US GAAP do not restricts the
company with respect to the disclosures they can make. Proper segment disclosures have been done in
case of TGP as per the respective guidelines (Maynard, 2017).
Section 5: Identify Potential Red Flags
Red flags refer to certain disclosures in the accounts of the company that are not relevant and
consistent with the activities of the company. It is an indication that there might be certain malpractices
on part of the management that might hamper their overall performance (Minnis & Sutherland, 2017).
But in this case we see that there are no potential red flags in the system that might affect their
performance. The company has given relevant disclosures for the all their actions and all is properly
defined (Birt, et al., 2017).
Section 6: Compliant with the Conceptual Framework
In this report we can say that the company has complied with the relevant accounting framework and
has given proper disclosures in regard to the same. The fact has been supported by the management of
the company and relevant actions have been taken to make sure that the books are free from all kind of
errors and issues (Sweeting, 2017).
11 | P a g e

12
Conclusion
Thus we can say that it is very important for the companies to follow the accounting framework for the
preparation and presentation of the financial statements. It is the standard that all the companies must
comply with and in any case if there is any issue relevant actions must be taken against the management
of the actions. The books of the company must be audited properly so that the relevancy of the financial
statements can be established and necessary steps must be taken to keep the accounts free from errors
and discrepancies (Prasad & Chand, 2017).
12 | P a g e

13
Refrences
Abbott, M. & Kantor, A., 2017. Fair Value Measurement and Mandated Accounting Changes: The Case of
the Victorian Rail Track Corporation. Australian accounting Review.
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Birt, J., Muthusamy, K. & Bir, P., 2017. "XBRL and the qualitative characteristics of useful financial
information". Accounting Research Journal, 30(1), pp. 107-126.
Burke, J. & Clark, C., 2016. The business case for integrated reporting: Insights from leading
practitioners, regulators, and academics. Business Horizons, 59(3), pp. 273-283.
Chariri, A., 2017. FINANCIAL REPORTING PRACTICE AS A RITUAL: UNDERSTANDING ACCOUNTING
WITHIN INSTITUTIONAL FRAMEWORK. Journal of Economics, Business and Accountancy, 14(1).
Chiapello, E., 2017. Critical accounting research and neoliberalism. Critical Perspectives on Accounting,
Volume 43, pp. 47-64.
Crosby, N. & Henneberry, J., 2016. Financialisation, the valuation of investment property and the urban
built environment in the UK. Urban Studies, 53(7).
Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business
Research, 47(6), pp. 617-632.
Fay, R. & Negangard, E., 2017. Manual journal entry testing : Data analytics and the risk of fraud. Journal
of Accounting Education, Volume 38, pp. 37-49.
Given, L., 2016. 100 questions (and answers) about qualitative research. s.l.:Sage.
Guragai, B., Hunt, N., Neri, M. & Taylor, E., 2017. Accounting Information Systems and Ethics Research:
Review, Synthesis, and the Future. Journal of Information Systems: Summer 2017, 31(2), pp. 65-81.
Han, B., Subrahmanyam, A. & Zhou, Y., 2017. The term structure of credit spreads, firm fundamentals,
and expected stock returns. Journal of Financial Economics, 24(1), pp. 147-171.
Kew, J. & Stredwick, J., 2017. Business Environment: Managing in a Strategic Context. second ed.
London: Chartered Institute of Personnel and Development.
Laursen, G. & Thorlund, J., 2016. Business Analytics for Managers: Taking Business Intelligence Beyond
Reporting. Second ed. CANADA: Wiley Publisher.
13 | P a g e

14
Maynard, J., 2017. Financial accounting reporting and analysis. second ed. United Kingdom: Oxford
University Press.
Minnis, M. & Sutherland, A., 2017. Financial Statements as Monitoring Mechanism: Evidence from small
Commercial loans. Journal Of Accounting Research, 55(1), pp. 197-233.
Prasad, P. & Chand, P., 2017. The Changing Face of the Auditor's Report: Implications for Suppliers and
Users of Financial Statements. Australian Accounting Review.
Sweeting, P., 2017. Financial Enterprise Risk Management. Second ed. UK: Cambridge University Press.
14 | P a g e