The chosen company for the report
Discuss about the Financial Statement Of Telstra Corporation Company.
Different accounting policymakers develop accounting standards. The accounting standards are rules that specify the type of measurement, recognition, and method that can be used by reporting entities in preparing general financial statements (Aribarg ET. Al 2018).
The financial statement from which the reports are made should select the most appropriate policy for use in preparation of the statement reports. In rare scenarios where the company cannot follow the accounting policy standard due to a justified reason. The system allows for a proper adoption strategy. The chosen strategy however, should be within the scope of the standards set by the policymakers.
There are different choices of accounting standards that can be used. They include; selection based on accounting standard setters, the determination by accounting preparers of financial statements and creative accounting policy. The method exploited by this report is the use of original accounting policy. The choice of creative accounting chosen is mostly done so that it satisfies (Henderson et al 2018).
The financial statement chosen for the report is from the description of TELSTRA CORPORATION. The company is a telecommunication firm that provide mobile operations all over the globe. It is currently the leading telecommunication company in Australia. It offers full range of communication services to the customers. The following link provides access to their financial statement (Kim 2015) https://www.telstra.com.au/content/dam/tcom/about-us/investors/pdf%20D/telstra-annual-report-2015.pdf. The statement is dated 30 JUNE 2015. The company has been listed in the top 20 by the ASX. The company is responsible for the planning, designing, engineering, maintenance and restoration of network in information technology. The group is also responsible for innovations that ensures services for new general opportunities (Kim 2015).
The company according to the financial statement invests its funds in IP based products and services. Investing in IP based product connects more people to the service. These works in favor of the company’s belief that connecting more people, the more opportunities for the company (Kim 2015).
The revenue return by the firm is mainly achieved through selling communications services to the customers. The bettering of their customer services has led to increased performance index of the firm. The firm has shared a fair distribution of unitholders and shareholders. The firm’s capital income over the past five years has been increasing with a slight drop in 2013 but has since kept improving. As at the end of the financial year 2015, the company had made a total net profit of 4.3b after tax (Kim 2015).
Creative accounting example no1: accounting policy choice
The report, therefore, is developed from a capable firm. The corporation competes fairly in the market analysis. That is if compared to other firms of the same caliber (Kullab & Yan 2018).
Accountants and accountant directors become creative in their choice of policies by making changes to the already existing set standards. These create the opportunity for concealing particular issues that the accountants don’t want to be noticed from their financial statements. The concealment is done so that the inter-period of allocation is overviewed rather than a permanent financial change. The financial statement of Telstra show various types of accounting policy creativity. The standard accounting policy by AASB requires classification measurements and de-recognition of financial assets and financial liabilities (Dunn 2015). This is supposed to be introduced around the rules of hedge accounting and impairment. The directors have not used this policy and instead used another procedure. The procedure used by the Telstra is the recognition of measurements of the company’s financial instruments carried at fair value through profit and loss determination (Dunn 2015). The company has therefore not applied the hedge accounting policy. They have consequently used the impairment model. The main accounting director of the Telstra company accepts this creativity and do not think this will have an impact on the fund investment. The measurement are all held at fair value through determination of profit and loss value. Their argument is based on the theory that; not using the hedge policy while using the impairment model will not have the impact on the customer’s investment model (Henderson, Peirson, Herbohn & Howieson 2015).
The other accounting policy that has been used creatively by the company is the standard for the recognition of the company’s revenue. The revenue is supposed to cover contracts for goods and services which include construction contracts. This standard is set so that when control of service is transferred to a customer. The notion of the power replaces the existing risks and rewards. The Telstra Company has ignored using this policy. They have therefore focused on income generating sources. They, therefore, used interest, dividends, distributions and financial instruments held at the fair value as predicted (Dunn 2015).
They, therefore, do not expect the neglected use the revenue standards to have any impacts on the company’s accounting policy. They also do not expect any severe effects on the amounts recognized in the financial statements.
The accounting director, therefore, expects that no material impact will reflect in any of the current or future reporting periods and therefore on foreseeable future transactions.
Creative accounting example no.2: biased estimations predictions
These two are typical examples of neglect of accounting policies by a proper established company derived their financial report.
Some accounting policies depend on the forecasts that the directors make on future events of a firm. These estimations include; calculations of depreciation rates. The depreciation rates will depend on the useful life of an asset of the company. The residual value of the property is also calculated over time to define the end of the useful life of the plant or asset. Such estimates provide for considerable space for creativity in accounting. This type of creativity also involves inter-period allocation of funds for different firm activities (Dunn 2015).
From the accounting report by (Telstra corporation note to the financial statement 30 JUNE 2015), the estimation by the directors on future sales of the financial instrument is a biased estimation. The price assigned to the financial instruments are based on cash and marketable securities. The predictions have therefore overlooked certain features as explained below.
The main overlooked feature that makes the forecast biased changes in future contract values. The financial statement ignore this serious issue with proves of settling the future contracts with daily exchanges. The prediction, therefore, becomes biased since daily expenses vary while contractual features might change concerning the agreement made (Gorm & Shklovski 2016).
The other biased estimation by the fund company is changing that might occur based on future indices on specified prices due to debt. The accounting director assumes that the financial market will remain organized in the future. They, therefore, do not see the need to estimate the changes of various contractual obligations of future dates for specified market prices. This is biased as the financial market are at times very unpredictable and can change in any directions over a brief period. With the change in commercial marketing, the specified prices can also shift affecting the indices of the net paid amount that had already been estimated by the directors (Alayemi 2015).
The accounting director has also made estimates on short-term financial instruments. The amounts are due on brokers accounts payable and accrued expenses. The quantities estimated produced fair since they are of immediate and short-term nature. Therefore the fund’s company accounting director must have made a reasonable prediction of these financial instruments.
The preparers of accounting financial statements interfere with the timings of transactions so that they relevantly hide information that they don’t want to affect the reputation of the Telstra Corporation. This is to avoid the management from taking real economic actions by showing how the impact of the result is rarely essential at this particular time of the report. Usually, the objective of the timing of transaction method is to window dress the current period’s financial statement. The financial statement have not applied the standard classification measurements on financial assets and liabilities. The statement gives the duration an applicable duration of up to January of 2016. The management is therefore considering that the measurement of assets and liabilities will only be signed up to that time. They, therefore, prefer using, valuation through assessment of profit and losses made by the firm (Kullab & Yan 2018).
The second example of time transactions is the windowing of revenue from the contract with customers. Accounting directors of the company prefer that they use the little notion of risk and reward. The official recognition of revenue that accrues from transferring goods or services to a customer has been timely neglected. The accounting director recognizes that they will use the accounting rules from that acknowledges the use and recognition of revenue beginning January 2016 which is interfering with the timing of the transaction (Dunn 2015). The firm accounting group, therefore, uses the accounting creativity to sideline the appropriate policy (Christensen 2016).
The accounting information from the financial statements is supposed to be used as incentives to engage investors and the government. Accounting creativity, therefore, hides essential information that will draw away the investors.
Several investors do not like reported company losses, therefore, prefer accrued profits. The accounting directors, thus, sustain the performances that meet such analyst focus. These must be the motivation behind the company in the example using the valuation of profit and loss rather than the use of hedge accounting and impairment. This is because the method of hedge accounting and impairment will impact on the funds’ financial statement. It will show measurements and de recognition of financial assets and financial liabilities. The standard if applied might have an impact on the result that might explain the real results not favorable to present to investors (Ali and Ahmed 2017).
The same motivation applies to the second accounting creativity (Kim 2015). The accountant has not used the accounting standard of revenue. Both IRFS and AASB give the revenues of the company if standardized concerning the regulation policy guide will expose the reduced incomes of the company. These present the company not to compete favorably among peer journal companies. The company, therefore, uses the creative accounting to compete favorably in the current market strategies for other companies. These, thus, acts as a motivation for the accounting creativity used by the accounting director of the firms (Hitt et al 2016).
The company would wish to retain their contracts with various stakeholder of the company. They therefore prefer biasing financial information to entice the investors and corporate partners (Vafeas & Vlittis 2015). In the case of the Telstra Company, the accounting creativity where the accounting directors use biased estimation is so that they achieve contractual perspective. The biased evaluation is done so that, the profits predicted can be shown to investors as a way of making them improve their contracts with the Telstra communication company.
Managers choose accounting policies for the firm. The accepted accounting policies are supposed to maximize the benefits to the managers themselves at the expense other stakeholders. For instance, the management may choose profit increasing accounting policies that will maximize the compensation for managers while reducing the risk of dismissal for other potential stakeholders (Apostolou, Dorminey, Hassel & Rebele 2016).
The act can, therefore, be done in two ways, one that makes the manager appear opportunistic and another that maximizes the value of the business of the company. When the business efficiency has been achieved through the accounting policy by the manager, the opportunistic behavior is then referred to as efficiency motive.
From the accounting business report that we had there are these two types of opportunistic behaviors;
Underinvestment. The funding company has the potential of investing in various kinds of business. Since the benefits of these investors will accrue on the stakeholders and the debtholders of the company. The managers chose not to invest in the various business and only invest in less than 5% of the revenues (Ali & Hirshleifer 2017). The investment is divided into five of the banks. There is an example of the managing decision that has been used by the funds firm as a way of endorsing opportunistic behavior (Yadav, Kumar & Bhatia 2014).
The other type of opportunistic behavior that has been used in benefit of the company. This, therefore, qualifies it to be referred to as efficiency motive. Efficiency motive has consequently been used in the funding company (Lail & Martin 2017). The firm has taken the ordinary course of entering into a transaction with the various derivative financial instruments. The risk is under looked by the managers so that the value change can be used in settling the company’s debt. The company, therefore, invested in derivatives as an essential structure of the company’s portfolio management. The derivatives invested in include; financial instrument price, foreign exchange rate, index of prices or rates and credit rating (Dunn 2015).
The process of contracting in reducing the opportunistic behavior. (Under investment as identified from the report)
The case of monitoring as the way of lowering opportunistic behavior will involve the following steps. The firm will need to report to the debt and stakeholders at regular intervals. The monitoring is usually concerned with creating covenants about any profits that might come from the contract. The reports therefore from the financial statements are audited and sent to stakeholders of the company. The stakeholders include all the trustees of the company. This will, therefore, ensure that the managers take part in financial decisions but involve all the stakeholders (Speckbacher 2017). These, thus, solve the element of opportunistic behavior caused by under-investing of the company.
Conclusion
Accounting directors of firms mainly use accounting creativity. It is primarily used to regulate different levels of the accounting management firms so that the company achieves different financial goals. The various techniques of accounting creativity are generally used in financial reports and statements. From our report, the chosen accounting creativity is timing transactions, accounting policy, and estimation biased policy. The three have been used in the report to show how they can be used in accounting creativity to achieve financial goals (Ho & Hensher 2016).
The accounting creativity impact on financial assets and liabilities. The revenues of the company and the profit and losses made by the company are part of the creativity used by the accountants in achieving creativity of various policies.
The different motivations that also make the accountants engage in the different accounting creativity techniques. The motivation explained in the report is contractual motivation and capital market motivation. Capital market motivation is, therefore, the primary motivation for accounting directors in using accounting creativity (Goshunovaa & Kirpikovb 2016).
The report also talks about opportunistic behaviors by the firm accounting managers. The accounting managers use different types of opportunistic behaviors to satisfy both the company and individual needs. The opportunistic behaviors include; underinvestment, over-investment, asset substitution among many others. This report has focused on underinvestment as an opportunistic behavior (Phillips 2014).
The report also mentions the remedy of opportunistic infection. There are two remedies of such opportunistic behavior, i.e., use of monitoring of contractual terms and method of bonding of the stakeholders. The report has exploited the purpose of monitoring as a way of solving the opportunistic behavior.
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