Telstra 2005 Annual Report Download - page 56

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Basis of preparation of the concise financial report
The principal accounting policies adopted in preparing the concise financial
report of Telstra Corporation Limited and its controlled entities (referred to
as the Telstra Group) are included in the financial report which forms part
of the detailed ‘Annual Report 2005’.
This concise financial report has been prepared in accordance with the
Corporations Act 2001 and AASB 1039: ‘Concise Financial Reports’ and is
derived from the detailed ‘Annual Report 2005’.
These accounting policies are consistent with those adopted in previous
periods. There have been no changes in accounting policies in fiscal 2005.
Further clarification of terminology used in our statement of
financial performance
Earnings before interest, income tax expense, depreciation and
amortisation (EBITDA) reflects our net profit prior to including the effect
of interest revenue, borrowing costs, income taxes, depreciation and
amortisation. We believe that EBITDA is a relevant and useful financial
measure used by management to measure the Company’s operating profit.
Our management uses EBITDA, in combination with other financial
measures, primarily to evaluate the Company’s operating performance
before financing costs, income tax expense and non-cash capital related
expenses. In consideration of the capital intensive nature of our business,
EBITDA is a useful supplement to net income in understanding cash flows
generated from operations that are available for payment of income taxes,
debt service and capital expenditure.
In addition, we believe EBITDA is useful to investors because analysts and
other members of the investment community largely view EBITDA as a key
and widely recognised measure of operating performance.
EBITDA is not a USGAAP (United States generally accepted accounting
principles) measure of income or cash flow from operations and should
not be considered as an alternative to net income as an indication of our
financial performance or as an alternative to cash flow from operating
activities as a measure of our liquidity.
Earnings before interest and income tax expense (EBIT) is a similar measure
to EBITDA but takes into account the effect of depreciation and
amortisation.
When a specific revenue or an expense from ordinary activities is of such
a size, nature or incidence that its disclosure is relevant in explaining our
financial performance for the reporting period, its nature and amount have
been disclosed separately in note 4.
Adoption of International Financial Reporting Standards (A-IFRS)
Australian entities reporting under the Corporations Act 2001 must prepare
their financial statements for financial years commencing on or after
1 January 2005 under the Australian equivalents of International Financial
Reporting Standards (A-IFRS) as adopted by the Australian Accounting
Standards Board (AASB). This will involve preparing our first set of financial
statements applying A-IFRS for the half-year ending 31 December 2005
and for the financial year ending 30 June 2006.
The transitional rules for first time adoption of A-IFRS require that we
restate our comparative financial statements using A-IFRS, except for AASB
132:‘Financial Instruments: Disclosure and Presentation’ and AASB 139:
‘Financial Instruments: Recognition and Measurement’where comparative
information is not required to be restated.
For reporting in the 2006 fiscal year, comparatives will be remeasured and
restated for the half-year ended 31 December 2004 and the financial year
ended 30 June 2005. Most of the adjustments on transition are required to
be made to opening retained profits at the beginning of the first
comparative period (ie. at 1 July 2004).
We have a formal IFRS project team to manage the convergence to A-IFRS
and enable us to be prepared to report for the first time in accordance
with the timetable outlined above. The project team is monitored by a
governance committee comprising senior members of management, which
reports regularly on progress to the Audit Committee of the Telstra Board of
Directors. The governance committee is monitoring our adoption of A-IFRS
in accordance with an established project implementation plan. The
committee has also been following the developments in IFRS and the
potential impact for our transition to A-IFRS.
The IFRS project is comprised of dedicated workstreams with project teams
responsible for evaluating the impact of a specific group of accounting
changes resulting from the adoption of A-IFRS. The technical evaluation
phase of each workstream is substantially complete and the project is
in the implementation and review phases. The project is achieving its
scheduled milestones and we expect to be in a position to fully comply
with the requirements of A-IFRS for the 2006 financial year.
Under A-IFRS, we expect our net profit to be more volatile compared with
existing Australian reporting requirements. However, we expect that the
adoption of A-IFRS will not significantly affect our net cash flow, our ability
to borrow funds or our capacity to pay dividends to our shareholders. In our
detailed ‘Annual Report 2005’ we have identified the key differences in
accounting policy and our known estimable transitional differences from
application of A-IFRS. In addition we have included the likely impacts on
the 2005 fiscal year result and financial position where known, and the
transitional adjustments for AASB 132/AASB 139 as at 1 July 2005. The
following areas have been identified as significant for the A-IFRS disclosure
in our ‘Annual Report 2005’:
• share based payments;
• business combinations;
• income taxes;
• property, plant and equipment;
• employee benefits;
• changes in foreign exchange rates;
• borrowing costs;
• investments in associates and joint ventures;
• impairment of assets;
• intangible assets; and
• financial instruments.
For detailed information on these areas please refer to note 1.4 in the
financial report which forms part of the detailed ‘Annual Report 2005’.
1. Accounting policies
notesto the concise financial statements