Financial Reporting Issues And Materiality In Telstra Corporation Ltd. - An Essay.

Discuss about the Financial Reporting Issues / Materiality In Accounting / Comparison Of Share Price Drop Throughout The Yeas / Litigations / Fines Paid in the context of Telstra Corporation Ltd. Also describe Class Action Agains Telstra, Etc.

Overview of Telstra Corporation Ltd.

Telstra Corporation Ltd. is the leading technology and telecommunications company. The company offers the broad suite for the media, connectivity and the content to the customers all over Australia along with the enterprise services all over the world. The co9mpany curate the capabilities and innovative technologies from all over the globe for delivering the exceptional experiences for the customers. The main objective of the company is to generate the exceptional connected future for each customer and to build themselves as the top class tech companies in the world that will empower the people for connecting. They are also in the way to create better ways for empowering everyone for thriving in the connected world (Telstra.com.au 2017).

The financial report of the company is general purpose financial report that is prepared by for profit company and is prepared as per the requirements of the accounting standards that is applicable for Australia, the Corporation Act 2001 and any other authoritative pronouncement of AASB (Australian accounting standard Board) the reports are also complied with the IFRS and the interpretations issued by IASB.

As per the Securities and Exchange Commission some information included in the financial report of the company constitute the forward looking statements which are subject to different uncertainties and risks. The statements can be recognized by use of the forward looking terminology like may, expect, will, estimate, anticipate, intent, continue, plan, believe and other likewise words. Such statements discuss about the future expectations considering the operation results, financial status or any other information related to forward looking (Deegan 2013). However, the actual results, achievements or performance may significantly different from the stated results or from that are implied through forward looking statements. The major factors that may have an impact on causing the difference between the actual results and expressed results materially must be mentioned by the company under the proper head mentioning as risk factors. Further, taking into consideration the uncertainties, risks and various other factors, the company shall not place any undue reliance on the forward-looking statement that only speaks as made of the date (Wahlen,  Baginski and Bradshaw 2014).  

The items from financial statements will be considered as material if they have the ability to influence economic decisions of the users. The concept of materiality with regard to the accounting principle must be disclosed through proper notes. The concept further ensures that the company does not withhold any critical information from the lenders, owners, regulators and investors (Khan, Serafeim and Yoon 2016).

General Purpose Financial Report

Every year Telstra conducts the materiality assessment as per the guidelines of GRI G4 that is guided by the Account Ability’s AA10000 Principle standard (2008). This procedure assures that the company’s programs and activities remain focussed towards the issues, opportunities and risks that will have most impact on the company as well as on the shareholders. However, for the year 2017 the materiality is considered as per the context of the UN sustainable Development goals, global trends and the company’s corporate strategies. Further the topics were recognized through the analysis of wide variety of the ongoing arrangements as well as sources and the shareholder’s feedback (Eilifsen and Messier 2014). The outcomes of materiality assessment of the company reveals that the most material issues of the company are not changed and includes data security, privacy, governance, digital inclusion and customer experience. Various material risks reported by Telstra in the annual report of 2017 are as follows –

• Major changes in regulation and engagement of the shareholders – policy changes or the regulatory changes may have direct impact on the business model and strategies and may increase the complexities and cost associated with business operation. The company proactively maintain and develop the relationships with the policy makers, regulatory stakeholders, industry and community group for minimising the potential adverse impacts of the regulatory decisions and policies. It is crucial for the company that they must have transparent, timely and clear communications with the stakeholders that includes the investors, shareholders, regulators and government regarding the company and various corporate strategies to understand the shareholder’s views and maintain healthy relations with them.  If the company fails in doing so it will have adverse impact on the company’s ability to incorporate the strategies. During May 2017 Telstra welcomed the draft decision of Australian Competition and Consumer Commission for not imposing the regulated roaming of domestic mobile and encouraging them for moving quickly for finalising the decision to deliver certainty regarding future investment over the entire industry. The company is also engaging the Australian Government as it is responsible for developing the recommendations of productivity commission on future of Universal Service obligation (Edgley 2014). The company is generally supportive towards the policy and regulatory changes if they can improve the experience of the customers especially those from the remote and rural areas of Australia. The company always communicates with the customers regarding how they can assure everyone that they can enjoy benefits of the reliable communication irrespective of the place they live in.

• Data governance – as the world is going through the risks and threats from the cyber security, if the company does not have sufficient system and data protection system from the theft, cyber attack or any other malicious actions, it will result into disruptions in network or regular operations, equipment failure, unauthorised dissemination, leakages of sensitive information regarding the company as well as the customers (Johnston and Petacchi 2017). Further, if the company is not able to deliver services to the customers owing to such events, it may results into loss of the market share, significant expenses, customer claims, regulatory actions and reputation loss. Failure with regard to protecting the information of the customer like breach of the security, unauthorised release of personal information of customers and illegal sale can have adverse impact on the reputation of the customers as well as the company and may results into adverse regulatory outcomes. Changes with regard to technologies that may have an impact on the way data is collected, changes the business model and how the company digitise the business may increase the risks over the time period. However, the company provide compulsory training regarding the privacy awareness, data security for all the employees and carry out regular privacy drills and cyber security all over the organization for testing the staff compliance level and vigilance.

• Business reputation and resilience – the network differentiation is crucial to the ability of the company to maintain and compare the brand, price premium, provisions for the stable, services, fast network and highly reliable market share and the growing revenues. Further, multiple threats are there with regard to the company’s ability for assuring the resilience and for the continuity of the key procedures, people and systems that includes extreme weather conditions, malicious attacks, natural disasters, loss of the third party service providers and the human errors (Gaynor et al. 2016). If the company is not able to meet the expectation of the customers it can frustrate the customers or the communities they serve which in turn can have impact on the brand and reputation and undermine the trust of the customers towards the company.  

• Competition and industry disruption – rapid changes in the telecommunications technology are reducing the barriers for entry and increasing the competition level in the telecommunication industry all over Australia as well as world. The competition arises from the existing as well as new competitors, specifically under the broadband and mobile segments and includes the Over – the – Top (OTT) providers of services with the lower base of cost and innovative and agile business models. Further, the expectation of the customers are also changing and demanding more from the technology and the technology providers. Risk is there that the company will not be able to differentiate themselves from the competitors, deliver the brand promises and maintain trust of the customers.

Share price of Telstra dropped to lowest in last 5 years as it reduced the future rate of dividends and announces their plans to sell part of the NBN receipts. Further, special NBN payouts are expected to decline till 2021 as the underlying earnings will fall further throughout the rollout of NBN. The company declared that it will pay the full year dividend of 31 cents per share for this year that was below the expectation of the market. Moreover, it announced that for the next year it will cut down the dividend by 30% and will pay out for full year just at 22 cents per share. The changes in the policy that follows 9 months review for the cash position of the company as it is facing rapid erosion of the internet business and traditional fixed line phones with regard to NBN (Griffin 2014).  The Chief Executive Officer of Telstra, Mr. Penn said that with regard to the challenges faced by Telstra, dividends will be cut as compared to the current policy of 100% payout of the underlying earnings to the range of 70 – 90%. As it will have great impact on the shareholders, the process of the company’s share started falling. Further, the shareholders will have to adjust to new capital and dividend policies and the investors those are focussed on yields are expected to be disappointed with new dividend trajectory. However, as per the management of the company the action was required as Telstra has moved to a positive step in rebasing their payout rate and will allow them to reinvest more amounts in the core business of the company.   

Forward-Looking Statements

Telstra had to loss big amount for keeping the information confidential in the patent dispute of Australia – the case of Unpaid Systems Ltd v Telstra Corporation Limited

Long-running dispute related to patent among Unpaid Systems Ltd, the Technology Company and major Australian telecommunication company, Telstra Corporation Limited came to a major inflexion point where the full court of Federal court of Australia rejected the attempt of Telstra to dismiss the matter summarily. In the follow up decision after few weeks, Federal court dismissed Telstra’s application with regard to have the large information tracts that was provided with regard to the suppression of dismissal application from the public access. Provided the issue with regard to the suppression of the materials not frequently are canvassed by court rather it is generally resolved directly among the parties. The case of Telstra provided interesting view with regard to the issues related to suppressions. The case is important as the defendant in the patent infringement process is required for disclosing the information they may prefer to keep them confidential (Australia and Summerfield 2017).

The fundamental litigation principle in Australia is that court conducts the businesses in the public and the documents that are read from the public record in the open court. However, the court has the option in the limited cases to suppress the information, if required. Telstra sough the suppression order over wide wraps of the information that included parts of the transcript, evidence filed with regard to the application of summary dismissal and outlined the flowchart and evidenced through description of the process of purchasing the Telstra product through Telstra mobile devices or internet browser. The federal court refuse the application of Telstra concluding that it has not demonstrated the information for suppressing the confidentiality and treating it as such by the suppliers, employees, consultants and contractors and these persons were involved in question or not under any obligation for not disclosing the actual information that were included in the affidavits, flowcharts and outline. The application from Telstra concerning the hearing took place during March 2015, application for suppression order heard during November 2015 and the decision made regarding the suppression during December 2016. Finally, court viewed that Telstra shall pay the unpaid costs related to the application.  

References

Australia, U. and Summerfield, 2017. Upaid v Telstra – Here’s How We Deal With NPEs in Australia!. [online] Blog.patentology.com.au. Available at: https://blog.patentology.com.au/2016/03/upaid-v-telstra-heres-how-we-deal-with.html [Accessed 15 Dec. 2017].

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Edgley, C., 2014. A genealogy of accounting materiality. Critical Perspectives on Accounting, 25(3), pp.255-271.

Eilifsen, A. and Messier Jr, W.F., 2014. Materiality guidance of the major public accounting firms. Auditing: A Journal of Practice & Theory, 34(2), pp.3-26.

Gaynor, L.M., Kelton, A.S., Mercer, M. and Yohn, T.L., 2016. Understanding the relation between financial reporting quality and audit quality. Auditing: A Journal of Practice & Theory, 35(4), pp.1-22.

Griffin, J.B., 2014. The effects of uncertainty and disclosure on auditors' fair value materiality decisions. Journal of Accounting Research, 52(5), pp.1165-1193.

Johnston, R. and Petacchi, R., 2017. Regulatory oversight of financial reporting: Securities and Exchange Commission comment letters. Contemporary Accounting Research, 34(2), pp.1128-1155.

Khan, M., Serafeim, G. and Yoon, A., 2016. Corporate sustainability: First evidence on materiality. The accounting review, 91(6), pp.1697-1724.

Telstra.com.au., 2017. Telstra - mobile phones, prepaid phones, broadband, internet, home phones, business phones. [online] Available at: https://www.telstra.com.au/ [Accessed 15 Dec. 2017].

Wahlen, J., Baginski, S. and Bradshaw, M., 2014. Financial reporting, financial statement analysis and valuation. Nelson Education.