Telstra 2007 Annual Report Download - page 121

Telstra Corporation Limited and controlled entities
118
Notes to the Financial Statements
In this financial report, we, us, our, Telstra and the Telstra Group - all
mean Telstra Corporation Limited, an Australian corporation and its
controlled entities as a whole. Telstra Entity is the legal entity, Telstra
Corporation Limited.
Our financial or fiscal year ends on 30 June. Unless we state
differently the following applies;
• year, fiscal year or financial year means the year ended 30 June;
• balance date means the date 30 June; and
• 2007 means fiscal 2007 and similarly for other fiscal years.
The financial report of the Telstra Group and the Telstra Entity for the
year ended 30 June 2007 was authorised for issue in accordance wit h
a resolution of the Telstra Board of Directors on 9 August 2007.
The principal accounting policies used in preparing the financial
report of the Telstra Group and the Telstra Entity are listed in note 2 to
our financial statements.
1.1 Basis of preparation of the financial report
This financial report is a general purpose financial report prepared in
accordance with the requirements of the Australian Corporations Act
2001 and Accounting Standards applicable in Australia. This financial
report also complies with Accounting Standards and Interpretations
published by the Internat ional Accounting St andards Board.
Both the functional and presentat ion currency of the Telstra Entity
and its Australian controlled entities is Australian dollars. The
functional currency of cert ain non Australian controlled ent ities is not
Australian dollars. As a result, the results of these entities are
translated to Australian dollars for presentation in the Telstra Group
financial report.
This financial report is prepared in accordance with historical cost,
except for some categories of investments, and some financial assets
and liabilit ies (including derivative instrument s) which are recorded at
fair value. Cost is the fair value of the consideration given in exchange
for net assets acquired.
In preparing this financial report, we are required to make judgements
and estimat es that impact:
• income and expenses for the year;
• the reported amounts of assets and liabilities; and
• the disclosure of off balance sheet arrangements, including
contingent assets and contingent liabilities.
We continually evaluate our judgements and estimates. We base our
judgements and estimates on hist orical experience, various other
assumptions we believe to be reasonable under the circumstances
and, where appropriate, practices adopted by international
telecommunications companies. Actual results may differ from our
estimates.
1.2 Clarification of terminology used in our income
statement
Under the requirements of AASB 101: “ Presentation of Financial
Statements”, we must classify all of our expenses (apart from any
finance costs and our share of net gain / loss from jointly controlled
and associat ed entities) according t o either the nature (type) of the
expense or the function (activity to which the expense relates). We
have chosen to classify our expenses using the nature classification as
it more accurately reflects the type of operations we undert ake.
Earnings before interest, income tax expense, depreciation and
amortisation (EBITDA) reflects our profit for the year prior to including
the effect of net finance 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 performance.
Our management uses EBITDA, in combination with other financial
measures, primarily to evaluate the company’s operat ing
performance before financing costs, income tax and non-cash capital
related expenses. In consideration of the capital intensive nat ure 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.
Earnings before interest and income tax expense (EBIT) is a similar
measure to EBITDA, but takes into account the effect of depreciation
and amortisation.
1.3 Rounding
All dollar amounts in this financial report (except where indicated)
have been rounded to the nearest million dollars ($m) for
presentation. This has been done in accordance with Australian
Securit ies and Investments Commission (ASIC) Class Order 98/100,
dated 10 July 1998, issued under section 341(1) of the Corporat ions Act
2001. Telstra is an entity to which this class order applies.
1. Basis of preparation