Telstra 2013 Annual Report Download - page 89

NOTES TO THE
FINANCIAL STATEMENTS
(CONTINUED)
FINANCIAL STATEMENTS
Telstra Corporation Limited and controlled entities Telstra Annual Report 2013 87
2.20 Post employment benefits (continued)
(b) Defined benefit plans (continued)
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 liabilities and assets at
reporting date:
• discount rates (determined by reference to a State and
Commonwealth blended 10-year Australian government bond
rate);
• 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 liabilities
and assets. If the estimates prove to be incorrect, the carrying value
may be materially impacted in the next reporting period. Additional
volatility may also potentially be recorded in other comprehensive
income 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 liabilities and assets.
2.21 Employee Share Plans
We own 100 per cent 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, performance rights, restricted
shares, deferred shares, incentive shares, and Ownshares.
Restricted shares, deferred shares and incentive shares are subject
to a specified period of service. Options and performance rights can
be subject to performance hurdles or a specified period of service.
We own 100 per cent 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 recognised in the income statement over the
relevant vesting periods, adjusted to reflect actual and expected
levels of vesting.
2.22 Derivative financial instruments
We use derivative financial instruments such as forward exchange
contracts, cross currency swaps and interest rate swaps to hedge
risks associated with foreign currency and interest rate fluctuations.
The use of hedging instruments is governed by the guidelines set by
our Board of Directors.
Derivative financial instruments are included as non current assets
or liabilities except for those with maturities less than 12 months
from the reporting date, which are classified as current assets or
liabilities.
Derivatives are initially recognised at fair value on the date on which
a derivative contract is entered into and are subsequently
remeasured to fair value. Refer to note 17 for details on the basis
used to estimate fair value. The method of recognising the resulting
remeasurement gain or loss depends on whether the derivative is
designated as a hedging instrument, and, if so, the nature of the
item being hedged. Where we hold derivative financial instruments
that are not designated as hedges, they are categorised as “held for
trading” financial instruments. All of our derivative financial
instruments are stated at fair value.
Derivative assets are derecognised when the rights to receive cash
flows from the derivative assets have expired or have been
transferred and we have transferred substantially all the risks and
rewards of ownership.
The carrying value of our cross currency and interest rate swaps
refers to the fair value of our receivable or payable under the swap
contract. We do not offset the receivable or payable with the
underlying financial asset or financial liability being hedged, as the
transactions are usually with different counterparties and are not
generally settled on a net basis.
Where we have a legally recognised right to set off the derivative
asset and the derivative liability, and we intend to settle on a net
basis or simultaneously, we record this position on a net basis in our
statement of financial position. Where we enter into master netting
arrangements relating to a number of financial instruments, have a
legal right of set off, and intend to do so, we also include this position
on a net basis in our statement of financial position.
Our derivative financial instruments that are held to hedge
exposures can be classified into three different types, according to
the reason we are holding them: fair value hedges, cash flow
hedges and hedges of a net investment in a foreign operation.
Hedge accounting can only be utilised where effectiveness tests are
met on both a prospective and retrospective basis. For all of our
hedging instruments, any gains or losses on remeasuring to fair
value any portion of the instrument not considered to be effective
are recognised directly in the income statement in the period in
which they occur. The extent to which gains or losses on the
hedged item and the hedge instrument do not offset represents
ineffectiveness which will create volatility in the income statement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES, ASSUMPTIONS AND JUDGEMENTS
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