Financial Reporting Technology and Telecommunication

Question: Describe about the Financial Reporting for Technology and Telecommunication. Answer: Introduction Telstra Corporation Ltd is a technology and telecommunication company that aims to provide information and telecommunication services to its local and international consumers. As the number one telecommunication carrier of Australia, Telstra serves more than 16.5 million mobile-phone consumers and offers fixed-lines services to approximately eleven million access lines. Since the companys formation in 1901, it outperformed its major competitors like Vodafone and Optus through its efficient services and marketing strategies. Furthermore, the company has sustained its efficient services over the years and as a result, it has assured growth in earnings and dividend (Telstra, 2015). Besides, the largest market of Telstra is consumer and residential customers that it gives top priority among other activities, and which has allowed it to operate efficiently in such a dynamic environment. Financial Analysis Financial analysis of a company considers many aspects of a financial statement but in the viewpoint of this assignment, this analysis is tapered to three key areas only. Besides, the financial statements prepared by the company are based on Australian Corporations Act of 2001 and other AASB (Australian Accounting Standards Board) announcements, thereby aiming to shed light on the reliability, relevance, and faithful representation concept. The three prime areas are as follows: Intangible assets An intangible asset is an asset, which is not physical in nature and is generally very hard to assess. These assets have been argued to be one significant contributor to inconsistencies betwixt company value based on market capitalization and company value based on accounting records. Therefore, it is relevant to understand what an intangible asset truly is. Intangible assets include softwares, goodwill, deferred revenue expenditure, internally established assets, etc (Fields, 2011). In relation to Telstra, it has embarked the yardstick for identification, valuation, and measurement of its intangible assets (Telstra, 2015). Internally created or generated intangibles of the company are basically its R D expenditure that necessitates proper judgement and assessment of the management in order to be measured and evaluated. Furthermore, in association with software, the company utilizes these and hence, written off as per the straight-line method over its terminable useful life. In addition, the procured intangible assets of the company are documented at their fair values, and these necessitate proper judgement of the management in order to be evaluated effectively (Libby et. al, 2011). In relation to the company goodwill, it cannot be recognized until the happening of a joint venture or procurement wherein the amount paid is greater than the fair value of the procured assets. Thus, this variation determined, is identified as Goodwill. Moreover, it is not written off gradually and instead is examined for impairment annually (IASB, 2010). In addition, the intangible assets of the company possessing a terminable life are gradually written off based on the straight-line concept over their useful life, while the intangibles possessing an infinite life span are examined for impairment annually. The company adheres to the conservatism concept, which states that the assets and revenues must only be recognized when they are assured of being attained. Furthermore, in order to ascertain the actual profit of the company, the offsetting of such intangible assets values to the statement of income proves to be very significant to the shareholders (Leo, 2011). This concept of impairment accounting together with the offsetting off the expenses plays a key role in the decision-making process of the shareholders, thereby assisting in establishing an efficient opinion instead of misjudgment of the opted shares (Gibson, 2012). The company has also complied with the disclosure concept based on information relating to these intangible assets in its section of Notes to Financial Statements. PPE (Plant, Property, and Equipment) PPE is the company asset that is significant to business functioning but cannot be liquidated easily, and based upon the nature of the companys business, its total value can vary from very low to extremely high in comparison to total assets. Furthermore, it is documentable at cost and written off as per straight-line concept over its expected useful life. It is notable that every cost associated with the erection and operation of this asset, is also includable in its cost. Moreover, in relation to internally created and constructed assets, proper judgement of the management is vital for determination of costs that must be capitalized. As the management gains an opportunity to capitalize some unacceptable expenses, it becomes crucial in the audit process to eliminate such possibilities. This can be done by comparing the transaction with that of the outside party so that the arms length price can be ascertained. The evaluation of costs because of construction necessitates more keen-eye d administration. This can further cater to the efficiency of reliability and relevance of the financial statements of the company. As the company assets are analyzed annually, it signifies that they must be in an efficient condition, thereby enabling the company to complete its deadlines efficiently. This is an efficient hypothesis because innovative technologies are converting assets inessential and the losses generated from their write-offs can be accountable under the impairment profit and loss account of the company (Northington, 2011). Furthermore, depreciation is chargeable on the assets when they are fit for utilization under the straight-line concept over their useful lives. This life is the anticipation of the management and is analyzed annually so that any variations in their lives are considered accordingly. This analysis is completed by the management by comparing the transaction with that of the global movements so that it can be ascertained when the asset will become useless or replaces the present technologies. In addition to the above, the surplus value of these assets is also taken into consideration by the management on an annual basis. There are particular examinations and standards that must be adequately catered, in order to be categorized as a leased asset. Hence, the company utilizes these above-mentioned strategies in order to ascertain its PPE (Property, Plant, and Equipment) on its financial statements. As these policies are very effective in nature, it will be problematic if these items are not added. Furthermore, the net amount under such PPE can be connoted as the acquisition or procurement cost of the asset minus accumulated depreciation, until the date of balance sheet and this can be examined in contrast to the net realizable or surplus value of the asset, for the purposes of impairment. Cash flow statement analysis Telstra has prepared its cash flow statement as per the AASB 107 (statement of cash flows) requirements under three prime heads that is cash flow from operating, investing, and financing activities. As the income statement of a company is an admixture of various costs, it is important to dissociate these costs into such above-mentioned heads, in order to understand the performance of each aspect and determine corrective actions if negative cash flow is ascertained. Any kind of movements in these heads crate significant impact on the companys cash and bank balance. Operating activities offer a clear-cut understanding of the companys operations in the present year, investing activities comprise of sum total of changes experienced by a company during a year in investment losses or gains, and financing activities can be non-trading or trading in nature (Deegan, 2011). Thus, it is very important to dissociate all these heads so that investors can gain an in-depth understanding as to how the flow of cash is influenced by various activities, thereby making it positive or negative in nature. Furthermore, the utilization and source of the companys resources can also be understood with the assistance of a cash flow statement that in turn helps the management in taking significant decisions based on the companys performance (Davies Crawford, 2012). Moreover, the cash expended on several accessions and cash obtained from disposals must be carefully discussed in the Notes to Financial Statements of a company. On a whole, it is the relevance, truthfulness, and magnitude of cash flow items that ascertain the disclosures. Furthermore, it is usually observed that companies comply with the accrual and credit policies of accounting. For instance, the company sales do not align to that of its bank and cash balance because sales realization may consume some amount of time. In addition, the company expenses can be both prepaid or deferred in nature (Samaha Dahaway, 2010). Thus, in relation to this, the loophole betwixt accounting and realization can be determined by settlement betwixt net flow of cash from operations and accounting profit respectively. This advocates a user of the non-cash expenses accumulated in the financial statements, thereby assisting in the decision-making process. References Davies, T. Crawford, I. (2012). Financial accounting. Harlow, England: Pearson. Deegan, C. M., (2011). In Financial accounting theory. North Ryde, N.S.W: McGraw-Hill Fields, E. (2011). The essentials of finance and accounting for nonfinancial managers, New York: American Management Association. Gibson, C. (2012).Financial statement analysis. Mason, Ohio: South-Western. IASB (2010). 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