Qualitative Characteristics of Financial Statements
The analysis based on the financial statement of the company is depicted to be having a significant role in terms of corporate accounting. It is to be discerned that financial statements often serve as a performance statement of company. Therefore, “consolidated balance sheet”, “comprehensive income statement”, “cash flow statement” and the “statement showing equity changes”, cannot be overlooked. The consideration of these vital things serves as various qualities of financial statements and the environmental aspects for making disclosure about compliance to the top management. The present study has discussed the various aspects of corporate accounting in terms of “Telstra Corporations limited”. The report has been segregated into two parts, the first part has stated about the qualitative characteristics of compatibility and relevance thereby disclosing the environmental reporting practices. The second part of the study have shown the intention of pre-acquisition entries during the depression of consolidated financial statements (Leung, Parker & Courtis, 2015).
The important aspects of the qualitative characteristics considered from the excerpts of financial report are related to “comparability, understand ability and reliability” of the reporting. In this segment, the principle of relevance and comparability is duly discussed with reference to the financial statement of Telstra Corporations (Telstra.com.au, 2018).
Relevance: The important aspect of relevance of in the financial report states that the various types of qualitative data should be relevant to the information which is being investigated by the stakeholders. As the statements have a critical role in the economic decision-making, the results of this information must be considered with utmost care. Henceforth, the omission of such information can lead to detrimental repercussions. The total amount of dividend payment is considered with the total income for a period along with net cash flow at the end of the year (Plumlee et al., 2015).
Comparability: The consideration for comparability of the financial statement is seen to be most important in nature. If the investors are not able to measure their returns, then the sole purpose of preparation of financial report is not worthwhile. Some of the main excerpts taken from the financial report of Telstra corporations clearly shows the comparability aspects in terms of dividend payment and cash flows. This comparison is clearly stated with person to changing the summary of statement items in terms of 2017 and 2016. Similarly, the company has compared the cash flow from financing activities based on 2016 and 2017 information (Nobanee & Ellili, 2016).
Sustainability Disclosures
Telstra corporations being one of the largest telecommunications network have considered several aspects of sustainability disclosure in its financial report. The main considerations of the sustainability aspects are in agreement with “United Nations Global Compact Communication on Progress”, and in accordance with the “Global Reporting Initiative (GRI) G4 Sustainability Reporting Guidelines” (Lu & Abeysekera, 2014). Some of the main initiatives under the sustainability disclosures include:
- The overall sustainability and judgement of the company with the stakeholder is more than 71% and it is aimed at focusing 68% reduction in greenhouse gas emissions(Nobanee and Ellili, 2016).
- In addition to this, the company has taken several initiatives to assist more than 1 million vulnerable customers to stay connected with their telecommunications network.
- The sustainability efforts have concentrated on most significant issues associated to reaching to more than 63000 people via digital literacy programs and their employees taking part in more than 8900 volunteering days in the community.
- Some of the core sustainability approach of the report have been considered with Digital futures, environmental solutions, consideration for climate change and energy and utilising resources efficiently thereby minimising environmental footprints in the value chain (Ben-Amar, Chang & McIlkenny, 2017)
The non-financial disclosure about sustainability engagement is depicted below as follows:
Telstra corporations have made comprehensive and robust disclosure in the report which have considered several aspects of the performance aspects. Being a telecommunications company, it has considered for various concerns for the society and community at large. Some of the important disclosures of these aspects have been listed below as follows:
- “Digital Future”
- “Environmental Solutions”
- “Responsible Business”
- “Ethics and Governance”
- “Culture and Capabilities”
- “Environmental and Resource Efficiency”
- “Networks”
- “Tech for Good”
- “Everyone Connected initiative”
It is to be discerned that the company has provided sufficient disclosures about each of the relevant topics as mentioned in the above excerpt. Whether it is information regarding climate change or considering the needs of culture and capabilities the company has produced significant amount of disclosure in the major environmental segments. Additionally, the efficiency in the disclosure of efforts associated with climate change and energy have been clearly stated with mitigating the climate change impacts and helping the stakeholders and communities to achieve the same. Some of the various initiatives for maintaining ethics and governance has been duly depicted with the consideration of transparency in doing business. The culture and Ability concept is taken into consideration with creating a world-class workplace for the people (Diouf & Boiral, 2017).
Based on the financial statement of the company, the management has adhered to the following disclosures in the annual report as per:
- Telstra corporations is particularly ensured that the disclosure of the annual statements is accurate, user-friendly and consists of adequate representation encompassing all the vital criteria’s. This is essential for the company to consider a robust and pictorial presentation of information as to say that the financial performance along with considering biodiversity and environmental reports. The reporting will be considered successful only when the users of financial statement will be able to understand the exact disclosures made by the company. Additionally, the company should consider adding more number of graphs beside pictorial presentation of data (Ina and Adriana, 2013).
- It is also recommended for Telstra corporations to exhibit the environmental impact and climate change disclosures in a more quantitative manner by the inclusion of tables and graphs. This consideration will benefit the users in having a better understanding of different aspects of the financial perspectives. In addition to this, Telstra should provide more previous information on the environmental and sustainability report for increasing the comparability aspect. For instance, the environmental disclosure along with climate change initiatives for a particular financial year can be represented in a tabular form which will show the various implications of previous year as well. Additionally, the company needs to consider comparing the data by taking into account the health hazards in the nearby area which are involved with network towers(Kraft, 2014).
The different types of important consideration for the pre-acquisition entries have been stated below as follows:
- Pre-acquisition entries are conducive in preventing any instance of “double counting of assets”
- The pre-acquisition entries are also conducive vital in preventing any instance of “double counting” associated with the equities of the concerned organisation
- The important purpose of recognising the bargain purchase is evident with the inclusion of pre-acquisition entries (Lombrano, A. and Zanin, 2013)
The report has identified two main conditions which needs to be considered for payment of dividend “on the date of acquisition”. The aforementioned two conditions include the disclosure of payment cum dividend and payment of ex dividend. These are listed as follows:
- Payment of Cum dividend: In case the dividend is paid on the acquisition date by a certain company and if it is discerned that the dividend declared is included with the final amount then the entry must be shown in the books of accounts. Henceforth, the payment of cum dividend even if paid at the acquisition date needs to be deducted from the total acquisition value considered for amalgamation. This suggests that the dividend has been accepted on the date of acquisition. In case, a similar situation is repeated then the company may consider adjustment of the same in the consolidated financial report during the end of FY (Holzmann, Scholz & Kreidl, 2017).
- Payment of ex-dividend:In case it has been discerned that the subsidiaries of the company is paying ex dividend at the date of acquisition then such a dividend payment is not considered to be a part of financial accounts.
The simulation of me and post dividend is very significant to be considered from financial perspective of an organisation. At the time of dividend declaring the pre-acquisition profits later on received by the buyer is deducted from the total investment cost. Henceforth, total dividend from pre-acquisition profit is considered as the pre-acquisition dividend. On the other hand, post acquisition dividend is credited to the PL account of the company. Similarly, the dividend received from post-acquisition are termed as post acquisition dividend (Tauseef and Nishat, 2015).
Pre-Acquisition Entries
During the acquisition process, the identifiable net assets are considered for monetary consideration pertaining to the subsidiary company which has been acquired. Moreover, the resultant goodwill amount will be duly shown in the books of accounts of subsidiary organisation, which will not be able to qualify for an identifiable asset of the company. On the other hand, in the books of account of subsidiary company, the goodwill will not be taken into account (Chan, Song and Fan, 2016).
In the aforementioned situation, the two methods of computing the goodwill will be based on “partial goodwill method” and the “full goodwill method”. Additionally, there needs to be a separate treatment for goodwill which is received from subsidiary company which is obtained at the date of acquisition taking place. In the partial goodwill method, only that goodwill which is received from the transaction is recorded, which is received from the transaction. However, in the full goodwill method, the company considers the goodwill received from subsidiary as well as on from the transactions. Additionally, the company depicts the differences between the two which eventually results in goodwill for the parent company.
In case in the date the parent acquires controlling interest in a subsidiary the carrying amount are not equal to the fair value then there needs to be specific adjustment made as per certain process.
One of the most important reason for the compilation of all the adjustments is considered with fair value of the assets which are considered during the amalgamation or consultation process. In this regard, there are particular company acquires the asset of any other company as a result of amalgamation, a considerable a considerable amount of adjustments become mandatory in nature. This is due to the fact that at the time of acquisition of any asset, these have a specific amount of fair value and market value incorporated in them. The difference among the two exhibits a true and fair representation of financial statements and the assets are presented as per current net value in the consolidated financial statements. Any failure to adhere to this process will lead to excess payment of taxes. In case the market value of the book value is overlooked in terms of net present value then this will lead to a significant loss for the company.
Conclusion:
The important reporting aspects of the corporate accounting can be clearly depicted with “comparability, understand ability and reliability” of the reporting. In this segment, the principle of relevance and comparability is duly discussed with reference to the financial statement. Moreover, the important aspect of relevance of in the financial report states that the various types of qualitative data should be relevant to the information which is being investigated by the stakeholders. Similarly, the various discussions of the report have found that the consideration for comparability of the financial statement is seen to be most important in nature. If the investors are not able to measure their returns, then the sole purpose of preparation of financial report is not worthwhile. It is to be discerned that the company has provided sufficient disclosures about each of the relevant topics as mentioned in the above excerpt. Whether it is information regarding climate change or considering the needs of culture and capabilities the company has produced significant amount of disclosure in the major environmental segments. The various information obtained from payment of Cum dividend have shown that in case the dividend is paid on the acquisition date by a certain company and if it is discerned that the dividend declared is included with the final amount then the entry must be shown in the books of accounts. Therefore, the payment of cum dividend even if paid at the acquisition date needs to be deducted from the total acquisition value considered for amalgamation. However, in case it has been discerned that the subsidiaries of the company is paying ex dividend at the date of acquisition then such a dividend payment is not considered to be a part of financial accounts.
References
Ben-Amar, W., Chang, M., & McIlkenny, P. (2017). Board gender diversity and corporate response to sustainability initiatives: evidence from the Carbon Disclosure Project. Journal of Business Ethics, 142(2), 369-383.
Chan, R.S.Y., Song, B.Y. and Fan, L., (2016). Dividend Policy and Investment Efficiency–The Changes of the Mandatory Dividends Payment.
Diouf, D., & Boiral, O. (2017). The quality of sustainability reports and impression management: A stakeholder perspective. Accounting, Auditing & Accountability Journal, 30(3), 643-667.
Holzmann, C., Scholz, H. and Kreidl, F., (2017). Stock Market Behavior on Ex-Dividend Dates: The Case of Cum-Ex Transactions in Germany.
Ina, M. and Adriana, T.T., (2013). Public Sector Combinations: A New Challenge for IPSASB. Annals of Faculty of Economics, 1(2), pp.540-549.
Kraft, P., (2014). Rating agency adjustments to GAAP financial statements and their effect on ratings and credit spreads. The Accounting Review, 90(2), pp.641-674.
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Lu, Y., & Abeysekera, I. (2014). Stakeholders’ power, corporate characteristics, and social and environmental disclosure: Evidence from China. Journal of Cleaner Production, 64, 426-436.
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Plumlee, M., Brown, D., Hayes, R. M., & Marshall, R. S. (2015). Voluntary environmental disclosure quality and firm value: Further evidence. Journal of Accounting and Public Policy, 34(4), 336-361.
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Telstra.com.au. (2018). Telstra – Our company. [online] Available at: https://www.telstra.com.au/aboutus/our-company [Accessed 21 May 2018].
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