Telstra 2016 Annual Report Download - page 159

157
Section Title | Telstra Annual Report 2016
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation 157
Other information
The Directors are responsible for the other information. The other
information comprises the information included in the annual report
for the year ended 30 June 2016, but does not include the financial
report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other
information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial report, our responsibility
is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to
be materially misstated.
If, based upon the work we have performed, we conclude that there
is a material misstatement of this other information, we are required
to report that fact. We have nothing to report in this regard.
Reliance on automated processes and controls
A significant part of the Group’s financial processes are heavily
reliant on IT systems with automated processes and controls over
the capturing, valuing and recording of transactions. This is a key
part of our audit because of the:
• Complex IT environment supporting diverse business processes
• Mix of manual and automated controls
• Multiple internal and outsource support arrangements
• Complexity of the billing systems which result in revenue being
recognised.
We understood and tested management’s controls in systems
relevant to financial reporting. When testing controls was not
considered an appropriate or efficient testing approach, alternative
audit procedures were performed on the financial information being
produced by systems.
The Group continues to enhance its IT systems and during the year
implemented new systems which were material to our audit.
We gained an understanding of material new systems including the
design of the automated processes and controls.
We assessed the processes put in place to migrate any data from the
legacy systems to new systems and tested reconciliations between
the systems.
We evaluated the design and tested the operating effectiveness of
the controls in the new systems and we performed additional audit
testing procedures.
Impairment of the goodwill and intangible assets
Given the changing nature of the industry in which the Group
operates, there is a risk that there could be a material impairment to
goodwill and intangible asset balances.
Determination as to whether or not there is an impairment relating to
an asset or Cash Generating Unit (CGU) involves significant
judgement about the future cash flows and plans for these assets
and CGUs.
Further disclosure regarding the Group’s impairment can be found in
Notes 3.1 and 3.2.
We evaluated the impairment calculations including the testing of
the recoverable amount of each CGU. We assessed the
reasonableness of the cash flow projections used in the impairment
models. We utilised EY Valuation Specialists to assess the
impairment models and evaluated the reasonableness of key
assumptions including the discount rate, terminal growth rates and
forecast growth assumptions. We also performed sensitivity
analysis around the key drivers of the cash flow projections. Having
determined the change in assumptions (individually or collectively)
that would be required for the CGUs to be impaired, we considered
the likelihood of such a movement in those key assumptions arising.
We evaluated the adequacy of the disclosures included in Notes 3.1
and 3.2.
Employee entitlements and post employment benefits
Given the large long term employee workforce as well as the number
of employees who are members of the defined benefit scheme, the
valuation of employee entitlements and the defined benefit
obligations are subject to complex estimation techniques and
significant judgement. A small change in assumptions can have a
material impact on the financial statements.
Further disclosure regarding the Group’s employee leave
entitlements can be found in Note 5.1 Employee Benefits. Disclosure
regarding post employment benefits can be found in Note 5.2 Post-
Employment Benefits.
We assessed the reasonableness of actuarial assumptions used in
valuing the defined benefit obligations. This included making use of
our actuarial specialists to support the testing of the external expert
calculations obtained by management. We tested controls around
the underlying employee data used in the employee entitlement and
defined benefit obligation calculations. We also tested the accuracy
of the calculations and models.
We evaluated the assumptions applied in calculating employee
entitlements such as the discount rate and the probability of long
service leave vesting conditions being met. We also tested the
accuracy of the calculations and models used to calculate employee
entitlement provisions.
Key audit matter How our audit addressed the matter