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1、TELSTRA CORPORATION LTDDue Date/Presentation: Friday 28 October 2005 I declared that all the work are done by my own.GROUP MEMBERSTABLE OF CONTENTSEXECUTIVE SUMMARYThis report represents an accounting analysis for Telstra Corporation Ltds （TLS） based on its 2005 Annual Report. TLS is Australias lead

2、ing telecommunications and information services company. It offers a full range of services and competes in all telecommunications markets throughout Australia, providing more than 10.3 million Australian fixed line and more than 6.5 million mobile services.The report begins by summarizing TLS main

3、business activities including landline and mobile phone services as well as TLS strategies to improve its market position within Australia.The report then goes on to identify the key accounting policies relevant to TLS success and the accounting standards and rules which apply. From the policies and

4、 standards noted, it is apparent that TLS management has limited or no flexibility in selecting the key accounting policies given the size of the company and its listing on the Australian Stock Exchange. It also appears that TLS incentive in selecting the strategies behind its key accounting policie

5、s is to maintain compliance and regulation within the parameters of legislation and the governing bodies. It was also found that the quality of TLS financial disclosure is of a high standard and that numbers which appeared questionable when viewing the financial reports were in fact disclosed under

6、the relevant footnotes within the annual report.Recent financial press has reported that whilst TLS continues to generate a net profit, revenues have been decreasing and TLS may have to reevaluate its current business strategies and position should it wish to remain a stronghold in the Australian te

7、lecommunications market. 1. Summary of Company Activities and StrategiesMain ActivitiesTLS main activities include the provision of: Basic access services to most homes and businesses in Australia; Landline phone services both local and long distance; Mobile telecommunications, data and internet ser

8、vices; Management of business customers IT and/or telecommunications services; Wholesale services to other carriers and carriage service providers; Advertising, directories and information services （e.g. the White Pages）; and Distribution services for FOXTELs cable television subscriptions. TLS Stra

9、tegiesTLS strategies to further its market leadership include: Migration of customer demand from traditional products and services, to the emerging products and services e.g. broadband internet services; Identifying cost efficiencies to protect operating margins and improve productivity; Continual i

10、mprovement of customer service levels; Privatisation of 100% of the company; Alignment of investment with revenue growth drivers.2. Background Information TLS current policy is to prepare its financial statements to satisfy both Australian Generally Accepted Accounting Principles, （AGAAP） and US Gen

11、erally Accepted Accounting Principals （USGAAP）. Where there is no conflict between AGAAP and USGAAP, TLS incorporates the more detailed requirements in both financial statements. TLS will adopt the Australian equivalents of International Financial Reporting Standards to future financial reports （eff

12、ective 1/07/2005）. Key Accounting Policies Relevant to Telstras Success:Overleaf are the key accounting policies relevant to TLS success. The relevant accounting standards and rules are noted in green. Revenue Recognition AASB 118 refers to the treatment of revenue from ordinary activities e.g. The

13、sale of goods and rendering of servicesThe underlying accounting principles of revenue recognition are the same under AGAAP and USGAAP. As USGAAP provides more detailed guidance as to the timing of revenue recognition, TLS has applied this to both AGAAP and USGAAP financial statements. The key point

14、s of TLS revenue recognition are: Revenue earned on the completion of calls is recorded; Installation and connection fee revenues and related incremental costs are deferred and recognised over the average estimated customer contract life; Any costs above the revenue deferred are recognised immediate

15、ly. Revenue from sale of goods is recorded on delivery of the goods sold. Network access revenue is recorded on an accrual basis over the rental period. Construction revenue is recorded on a percentage of contract completion basis. Revenue from online directories is recognised over the life of the s

16、ervice agreements （1 year）. Print directories are recognised on delivery. Voice directories are recognised at the time of providing the service to customers; Revenue received in advance is initially recorded as a liability and then transferred to earned revenue in line with the revenue policies desc

17、ribed.ReceivablesAASB 118 （18） revenue is recognised only when it is probably that the economic benefits associated with the transaction will flow to the entity. （Deegan pg 547）Trade debtors are recorded at amounts to be received. A provision for doubtful debts is raised based on a review of outstan

18、ding amounts at the balance date. Bad debts specifically provided for in previous years are recorded against the provision for doubtful debts. In all other cases, the bad debts are written off as an expense directly in the statement of financial performance. Receivables from related parties are reco

19、gnised and carried at the nominal amount due. InventoriesAASB 102, paragraph 9. Inventories are to be measured at the lower of cost and net realisable value on an item by item basis. （Deegan pg 230）.Inventories are valued at the lower of cost and net realisable value. TLS allocates cost to the major

20、ity of inventory items on hand at balance date using the weighted average cost basis. For the remaining quantities on hand, actual cost is used. Construction ContractsAASB 111 provides guidance on determining reported value of partly completed construction projects and on deciding when the associate

21、d revenues and expenses should be recognised. （Deegan page 557）Construction contracts are recorded in progress at cost less progress billings where profits are yet to be recognised. Where a significant loss is estimated to be made on completion, a provision for foreseeable losses is brought to accou

22、nt and recorded against the gross amount of construction work in progress.Profit is recognised when the stage of contract completion can be relied on; costs to date can be identified and total contract revenue is to be received and costs to be completed can be reliably estimated.Property Plant and E

23、quipment （PP&E）AASB 116. PP&E is to be initially measured at cost and include the purchase price, any costs need to bring the asset to the location and condition necessary for operation and any costs associated with dismantling the item. This standard covers depreciation for PP&E and defines it as t

24、he systematic allocation of the depreciable amount of an asset over its useful life.Acquisition of PP&E are recorded at cost. Valuations of all land and buildings are obtained once every 3 years. All property, plant and equipment are held at cost.PP&E is to be depreciated on a straight line basis ov

25、er its estimated service life.3. Management Flexibility in Selecting Key Accounting PoliciesTelstra management has limited or no flexibility in selecting the key accounting policies. This is because TLS does not meet the small company requirements under s296 of the Australian Corporations Act, 2001

26、i.e.: a gross operating profit below $10million; Gross assets below $5million; and Less than 50 employees. Therefore the company directors are required to ensure that TLS financial statements for the financial year are made out in accordance with the relevant accounting standards. The directors of T

27、LS, as stated in the notes to the Telstra financial statements （2005） must ensure that the reports are prepared in accordance with the necessary requirements under: The Australian Corporations Act 2001; Australian Accounting Standards Board; Urgent Issues Group; and AGAAP.In future periods, TLS must

28、 adopt the International Financial Reporting Standards.4. Evaluation of Employed Accounting Strategies TLS has presented its financials as per USGAAP and AGAAP. The accounting strategies employed by management in respect to each key accounting policy are in line with the prescribed standards.Revenue

29、 RecognitionTLS management has adopted the accounting policies as defined under the relevant accounting standard AASB118 and applied them so that they are appropriate for use within the telecommunications market.Bills of exchange and commercial papers with a maturity date greater than three months a

30、re valued at amortized cost with interest revenue recognized on an effective yield to maturity basis. Receivables from related parties are recognized and carried at the normal amount due. Interest is taken as income on an accrual basis.InventoryThe weighted average cost method is used for the cost a

31、llocation for a majority of the inventory items on hand. For the remaining quantities on hand, accrual cost is used.TLS management has adopted the accounting standard AASB111 and applied it without alteration to the reporting of its construction contracts. Revaluation of Property, Plant & EquipmentTLS obtains valuation of all the land and buildings it holds once every three years or, more frequently if necessary in accordance with the requirements of AASB 1040. It is TLS policy to apply the cost basis of recording property plant and equipment.