Professionalism and Role in Society †Free Samples to Students

Question: Discuss about the Professionalism and Role in Society. Answer: Introduction The IASB has developed standard accounting policies and estimates that needs to be adopted by all the business entities during preparation of their financial reports. The accounting policies are based on the IFRS standards that business entities need to follow while identifying and assessing the values of their various financial instruments. The adoption of IFRS standards during corporate reporting implies that a business entity has followed all the principles of conceptual accounting framework. The principle of conceptual accounting framework is based on various accounting theories such as normative accounting theory. In this context, the present report provides an analysis of the accounting strategies and choices of an ASX listed firm, that is, Telstra, an Australian telecommunication company involved in developing and providing telecom services. The accounting strategy of the company is examined through evaluating its flexibility, analyzing the quality of disclosure, identifying t he major issues of concern as red flags and the compliant with conceptual framework principles. In addition to this, the accounting policies of the firm are compared with its rival company that is TPG in order to identify the norms of accounting policies with industry peers (Mirza and Ankarath, 2012). The evaluation of the accounting quality of the company helps in supporting the decision-making process of the company. The company has adopted the accounting policies and principles as per the Australian Accounting Standards. The company have discloses the compliance of its financial reports as per the Australian generally accepted accounting principles. The financial report has been prepared in accordance with the principle of consolidation by integrating the financial statements of Telstra and all its controlled entities (Langendijk, Swagerman and Verhoog, 2003). The historical cost accounting approach is used for valuation of its financial instruments except for some of the equity accounted investments. The financial reports are presented in Australian dollar and for the end-users outside the Australia, the financial reports are presented in US$M. The company has adopted the accounting policies that help it to meet the accounting requirements under AGAAP and USGAAP. The company has also adopted the Emerging Issues Task Force (ETIF00-21) in relation to the recognition of revenue arising from multip le deliverable as per the USGAAP. The policy is adopted at the time of selling tow or more revenue generating units under a single arrangement. Also, each deliverable is regarded as a distinct unit of accounting as per the ETIF00-21. However, if the deliverable is not regarded to be distinct unit of accounting the arrangement is accounted for a single unit. The revenue realized from the revenue arrangements is allocated to the separate units on the basis of relative fair value of each unit (Telstra Annual Report, 2017). However, if the fair value of each unit cannot be recognized, then the revenue should be allocated on the basis of difference between the total amount considered for the arrangement and the fair value of the undelivered item` (Jensen, 2001). The Australian entities that are reported under the Corporations Act 2001 are also required to prepare their financial reports as per the Australian equivalents of IFRS. The Telstra complies effectively with the Corporations Act 2001 and as such need to prepare its financial reports as per the IFRS accounting standards and policies. The accounting rules and policies of IFRS have been adopted in reporting the comparative financial information of two years in the current reporting period (Higson, 2003). This is done in accordance with the US Securities and Exchange Commission (SEC) that requires the foreign registered companies operating under the home country to prepare their financial statements as per the IFRS. The company is a recognized multinational company and provides its telecom services to various parts of the world and therefore is emphasizing on converging its accounting standards with IFRS for improving its competitive position in the international market (Hussey, and Ong, 2005). The company ahs also adopted accounting policies for effective management of risk through implementing a proper governance framework that helps in monitoring the operational risks faced by the company. The company hedges its exposure to foreign currency risk that is developed by the transformation of its assets and liabilities from the functional currency to the Australian dollars. The Board of directors of the company provides the standard guidelines to the management for the use of hedging instruments in order to mitigate the operational risks arising from the foreign currency exposure (Mumba, 2013). Assess Accounting Flexibility The accounting managers need to implement some changes in the standard accounting policies developed by the accounting stetting standard board. The flexibility is required so that managers can select the best accounting choices as per the nature of their business operations. The managers sometimes implement changes in the standard accounting framework to meet the needs and expectations of its stakeholders. The fact can be supported from the view and findings proposed by the positive theory of accounting (PAT ). The theory is based on the fundamental assumption that the action of an individual relies on the desire for maximizing wealth. Thus, the mangers tend to adopt the particular accounting methods that they believe will enhance the operational productivity of their company. The accounting methods selected have a major impact on the cash flows realized by the company and also on its debt and compensation structure (Alexander, Britton and Jorissen, 2007). Therefore, the board provid es some discretion power to the management so that they can select the best accounting method that results in maximizing the value of the firm. As such, it has been analyzed from the financial report of Telstra that it has implemented some changes its accounting framework for improving its financial condition in the international market (Kenny, 2009). The company operates globally and therefore need to comply with the accounting policies of different countries and therefore mangers adopt some changes in the accounting framework to impact the needs and expectations of stakeholders of different countries (Telstra Annual Report, 2017). The Australian corporations need to adopt AGAAP for developing the financial reports. However, the company has also adapted to the USGAAP in order to improve its competitive position in the US financial market. For example, it has provided comparative information of two years under a single reporting period as per the USGAAP. In addition to this, the company has also complies with the accounting principles of security commission of the US. The complete information regarding the changes adopted in the accounting policies is provided in the notes to financial statements section of the financial report of the company. The company has adopted the changed accounting policies for satisfying the requirements of USGAAP in regards to recognizing the revenue by adopting the ETIF 00-21 accounting policies. However, the company has maintained in its annual report that there is no materialistic impact of adopted the changes in its accounting framework on its financial statements. The managers are also emphasizing on adopting the Australian equivalent of IFRS (A-IFRS) for restating its comparative financial reports. The changes are however not expected to be implemented on the disclosure of financial instruments that does not require publishing the comparative information. The restatement of the financial information as per the A-IFRS will require changes in the opening retained profits recorded at the beginning of the comparative period. The company has also developed a project teams forecasting a convergence between its AASB standards and A-IFRS standards. The team holds the responsibility of monitoring and evaluating the progress made by the company in complying with the A-IFRS standards (Mintz, 2013). Evaluate Accounting Strategy The accounting strategies are developed for communicating the economic performance of an entity to its stakeholders. The accounting strategy is developed by the selected accounting policies and choices that an entity adopts for maintaining its competitiveness and achieving long-term growth. The company operates in a highly competitive telecom market and therefore need to implement the accounting strategies that help it to compete effectively with its competitors. The major rival company of the Telstra in Australian telecom market is TPG that is also involved in providing specialist telecom services to the countrys population group (Marley and Pedersen, 2015). TPG mainly provides its services in the domestic market and therefore complies largely with the AASB and Corporations Act 2001. The company has adopted the principle of consolidation and all the other significant accounting policies to develop its financial reports as per the AASB standards. On the other hand, Telstra provide it s telecom services in the international market and therefore develops its financial reports in accordance with the IFRS accounting policies. However, the company have also adopted significant accounting norms for competing with its rival companies in the domestic market such as TPG. The company prepares its accounting statements on a going concern basis as per its rival company of TPG (TPG Annual Report, 2017). The TPG has adopted the use of AASB standard 134 for interim financial reporting. The Telstra also has adopted AASB 134 standard to maintain its competitiveness in the domestic market also (Telstra Annual Report, 2017). The Telstra has also placed large focus on implementing and adopting incentive plan for its key management personnel (KMP) as per the Australian standards. The remuneration committee is established by the company for determining the incentives provides to its key executive and non-executive managers. The board have adopted accrual accounting method in determining the incentives provided to the managers. The remuneration committee have aligned the shareholders value with the managerial compensation plan. The incentives are provided to the managers on the basis of achieving the certain defined performance targets. The remuneration committee determine the performance targets to be achieved by the senior executives of the company (Ordelheide, 2016). Thus, on achieving the performance target, the managers receive 50% of the incentives and the rest is realised by them only if their performance is beyond the set targets. Thus, the board have ensured that mangers does not receive any incent ive still the achievement of a threshold level of performance. The board possess discretion power in determining the incentive basis for managers on the basis of their performance compared against the determined short and long-term incentive plans. The board applies the discretion power when there are any materialistic changes in regard to any change in the strategic business plan, legislative changes or the significant impact of the acquisitions and divestments. The discretion is used by the board in certain circumstance sonly in order to avoid the realisation of undue gains by the managers. The company has provided adequate disclosure regarding the discretion provided to the board in determining the incentive pans for ensuring that that the discretion power does not distort the financial performances in nay way (Bamberg and Spremann, 2012). Detailed analysis of the quality of disclosures under financial reporting As per IAS 1: Presentation of financial statements every company has to prepare the financial statements. These financial statements include income statements, statement of financial position, statement of change in equity and statement of cash flow. In addition in to making the financial statements there is requirement to submit the disclosures of accounting policies, calculation of various items under the financial statements and other important information. As per the accounting standards defined under the IFRS, every listed company is obliged to produce the financial statements and provide the proper disclosures to it in the form of notes to accounts. Disclosures requirements that have to be included in the notes to accounts are given in accounting standards that company follows to prepare the financial statements. In this section of section of report analysis of the disclosures made by the Telstra in their annual report of year 2017 has been analyzed in detail (Telstra Annual Re port, 2017). Analysis of the disclosures made by the Telstra in their annual report seems to be proper while comparing them with the requirement of each of the accounting standards. Telstra produces their group financial statements that are in compliance with the US GAAP and Australian GAAP because company is listed on both the stock exchange. Looking at the annual report it has been found that complete information regarding the changes made in the accounting has been included in the disclosures requirement (Telstra Annual Report, 2017). Footnotes refers to information given under each of the financial statements that provided information of what accounting standards have been used to prepare that particular financial statements. For example, in preparing the financial statement of balance sheet, there is requirement to include the footnotes regarding any contingent liabilities and other related matter. So it can be said that company complies with the adequacy of the disclosures of the footnotes to the financial statements (Telstra Annual Report, 2017). On evaluating the notes to accounts of the Telstra in annual report of year 2017, it has been found that there has been disclosure of each note that are required to be included as per defined accounting standards. Disclosures made by the Telstra needs to be in compliance with the performance of the company. It means notes to financial statements should reflect the current performance of the company effectively and efficiently. It has been seen from the financial statements that current financial position of the company was good and same can be reflected under the notes to accounts also. For example, notes to accounts related to the segment disclosures provide the profit position of each of segment that company have. This information explains how company has performance during the year in each of its segment (Telstra Annual Report, 2017). Telstra Company has to comply with the US GAAP and Australian GAAP to produce their financial statements. In the annual report it is clearly mentioned that company has used the proper accounting guidelines to produce the financial reports that complies with requirement of both US GAAP and Australian GAAP (Horngren, et al., 2012). Both US GAAP and Australian GAAP are taken from the international accounting standards. Both these GAAPs aim to provide the qualitative information to the people at large that use the annual report to make the various decisions. So it can be said that GAAPs represents the financial performance of the company and also tries make the financial information easy to understand. In this regards it can be said that GAAPs helps to reflect the appropriate measurement of key measures of success and also assures proper disclosures (Telstra Annual Report, 2017). Segment disclosures means information provided for the various segments under the notes to accounts. The business segment refers to part of the company which can be identified by its products and produces separate books of account. Segments are dividend on the basis of the business location, products and services they deliver and profit deliver by them. Segment disclosure has been included on page 77 of the annual report of year 2017. The various operating segments of the Telstra are as under: Telstra Retail: This segment provides telecommunication products and services and other solutions of mobiles. Global Enterprises and Services (GES): This business segment in made for managing the sales and contract management for large business and government customers in Australia and in other nations. Telstra Operations (TOps): This business segment is designed for overall planning, design, engineering architecture and construction of Telstra telephone networks, technology, and similar work. Telstra Wholesale: This unit delivers the telecommunication products and other services over thousands of Telstra Network and other telecommunication network carrier companies (Telstra Annual Report, 2017). Potential Flags in the Annual Report It has been seen that there has been no major change in the accounting policies of the company in order to make the big change in the financial statements. Basically the company is generating good income during last five years and there is no future expectation of decline in company performance. So it can be said that there was no major change in accounting policies that can impact the firms financial statements (Telstra Annual Report, 2017). As analyzed from the annual report there are usual transactions that has provided increase in profit in normal course of business but no such transactions have been noticed that can make clarity regarding the unusual change or boost of the profits (Hussey and Ong, 2017).. Yes there is increase in inventory to 893 million dollar as comparison to 557 in year 2016. It is regarded as unusual because there is no such increase sales amount as the inventory has increased (Telstra Annual Report, 2017). When evaluating the net income from the continuing operations there has been no much gap of income as sales revenue in year 2017 is almost close to the revenue in year 2016. The cash from the operating activity declines in year 2017 due to low increase in sales revenue and expenses are paid much in cash. Telstra is one of the most renowned companies of telecommunication industry (Pietra, McLeay and Ronen, 2013). Company has its known research and development segment that provides latest technologies required by the company but in order to have other technologies that are important for development purpose have to incorporated in the business and for this purpose management has made mutual agreements to share the research and development work between other companies in similar business. In year 2017 company has not sold any plant, equipment and receivables to finance the business operations (Telstra Annual Report, 2017). About 679 million dollars of plants and equipments have been sold in year 2017. There are adjustments of tax deferments in the last quarter of year. Annual report is qualified by the auditor with making no changes in the financial report. There are no related party transactions in the annual report (Telstra Annual Report, 2017). Compliant With Conceptual Framework The company have complied effectively with all the conceptual accounting framework principles by providing relevant, comparable and reliable information in its financial reports. The impact of political factors that influences the financial reporting of the company in various countries has also been outlined in the report. Telstra is a multinational company and therefore is emphasising on attaining congruence with the IFRS in order to comply with the accounting policies of different countries where it conducts its business operations. The company as such is complying with USGAAP and is planning to implement A-IFRS standards in the coming period of time (Wolk., Dodd and Rozycki, 2012). It has made many voluntary disclosures in its annual report that is not required under the legislations of AASB but as per the USGAAP principles. For example, it has provided the information about its revenue arrangement from multiple units (Telstra Annual Report, 2017). The selection of these particula r accounting choices and estimates by the company will help it to strengthen its global image and thus improve its financial profitability from the international market (Bamberg and Spremann, 2012). Conclusion It can be inferred from the overall discussion held in the report that accounting policies and strategies selected by a business entity have a large impact on its financial performance. The Telstra is a multinational company and thus it is complying with the global accounting standards for improving its competitiveness in the global market. As such, it has adopted some flexibility in its accounting framework to comply with the USGAAP principles in addition to complying with AGAAP. Also, there are some red flags identified in the annual disclosure of the company that needs more disclosure in its future financial reports. 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