Telstra 2008 Annual Report Download - page 122

Telstra Corporation Limited and controlled entities
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Notes to the Financial Statements (continued)
2.20 Post-employment benefits
(a) Defined contribution plans
Our commitment to defined contribution plans is limited to making
contributions in accordance with our minimum statutory
requirements. We do not have any legal or constructive obligation to
pay further contributions if the fund does not hold sufficient assets to
pay all employee benefits relating to current and past employee
services.
Contributions to defined contribution plans are recorded as an
expense in the income statement as the contributions become
payable. We recognise a liability when we are required to make future
payments as a result of employee services provided.
(b) Defined benefit plans
We currently sponsor a number of post-employment benefit plans. As
these plans have elements of both defined contribution and defined
benefit, these hybrid plans are treated as defined benefit plans.
At reporting date, where the fair value of the plan assets exceeds the
present value of the defined benefit obligations, the net surplus is
recognised as an asset. We recognise the asset as we have the ability
to control this surplus to generate future funds that are available to us
in the form of reductions in future contributions or as a cash refund.
At reporting date, where the fair value of the plan assets is less than
the present value of the defined benefit obligations, the net deficit
would be recognised as a liability.
Fair value is used to determine the value of the plan assets at reporting
date and is calculated by reference to the net market values of the
plan assets.
Defined benefit obligations are based on the expected future
payments required to settle the obligations arising from current and
past employee services. This obligation is influenced by many factors,
including final salaries and employee turnover. We engage qualified
actuaries to calculate the present value of the defined benefit
obligations. These obligations are measured net of tax.
The actuaries use the projected unit credit method to determine the
present value of the defined benefit obligations of each plan. This
method determines each year of service as giving rise to an additional
unit of benefit entitlement. Each unit is measured separately to
calculate the final obligation. The present value is determined by
discounting the estimated future cash outflows using rates based on
government guaranteed securities with similar due dates to these
expected cash flows.
We recognise all our defined benefit costs in the income statement
with the exception of actuarial gains and losses that are recognised
directly in equity via retained profits. Components of defined benefit
costs include current and past service cost, interest cost and expected
return on assets.
Actuarial gains and losses are based on an actuarial valuation of each
defined benefit plan at reporting date. Actuarial gains and losses
represent the differences between previous actuarial assumptions of
future outcomes and the actual outcome, in addition to the effect of
changes in actuarial assumptions.
We apply judgement in estimating the following key assumptions
used in the calculation of our defined benefit assets at reporting date:
• discount rates;
• salary inflation rate; and
• expected return on plan assets.
The estimates applied in the actuarial calculation have a significant
impact on the reported amount of our defined benefit plan assets. If
the estimates prove to be incorrect, the carrying value of our defined
benefit assets may be materially impacted in the next reporting
period. Additional volatility may also potentially be recorded in
retained profits to reflect differences between actuarial assumptions
of future outcomes applied at the current reporting date and the
actual outcome in the next annual reporting period.
Refer to note 24 for details on the key estimates used in the calculation
of our defined benefit assets.
2.21 Employee share plans
We own 100% of the equity of Telstra ESOP Trustee Pty Ltd, the
corporate trustee for the Telstra Employee Share Ownership Plan
Trust (TESOP97) and Telstra Employee Share Ownership Plan Trust II
(TESOP99). We consolidate the results, position and cash flows of
TESOP97 and TESOP99.
The Telstra Growthshare Trust (Growthshare) was established to
allocate equity based instruments as required. Current equity based
instruments include options, restricted shares, performance rights,
deferred shares, incentive shares, directshares and ownshares.
Options, performance rights, and restricted shares are subject to
performance hurdles. Deferred shares and incentive shares are
subject to a specified period of service.
We own 100% of the equity of Telstra Growthshare Pty Ltd, the
corporate trustee for Growthshare. We also include the results,
position and cash flows of Growthshare.
We recognise an expense for all share based remuneration determined
with reference to the fair value at grant date of the equity instruments
issued. The fair value of our equity instruments is calculated using a
valuation technique that is consistent with the Black-Scholes
methodology and utilises Monte Carlo simulations. The fair value is
charged against profit over the relevant vesting periods, adjusted to
reflect actual and expected levels of vesting.
2. Summary of accounting policies (continued)