Intangible assets reporting in Telstra Corporation Limited
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Using the country comparison tool on the Hofstede Centre’s Web to compare your selected country’s cultural
dimensions with that of the United States. Explore your chosen country’s cultural attitudes toward:
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�Power distance.
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�Uncertainty avoidance.
Respond to the following:
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Introduction
Running Head: Accounting 2
The listed company that is subject of this report is Telstra Corporation Limited. Telstra
Corporation Limited, hereafter referred to as Telstra, is the largest telecommunications and media
company in Australia. The corporation builds and operates telecommunication networks in its target
markets and also deals in pay television, internet access and mobile voice devices among other
services and products ( www.telstra.com ). Telstra is a public company founded in 1975 and is
headquartered in Telstra Corporate Centre in Melbourne in Australia. Telstra’s expenditure in
research & development doubled from $2 million in 2013 to $4million in 2014. This attests to the
importance that the company places on research & development activities in its business model
( www.telstra.com ). Telstra was initially a company owned by the government but was later
privatized in three separate stages in 1997, 1999 and the last stage in 2006. In the first stage in 1997,
the government sold A$14billion and floated the company’s share in the Australian Stock Exchange
in an initial public share offer (IPO). The 1999 privatization saw the government reduce its
shareholding to 51% after selling 16% shares in the company ( www.telstra.com ). The 2006
divestiture from the company resulted in the government placing the remaining shares it still held in
Australia’s Future Fund which in effect made the Australian government a minority shareholder in
the company. Subsequent divestitures in 2009 and 2011 saw the government relinquish all its shares
in Telstra. Telstra is the most widely held public company in Australia with over one million
shareholders ( www.telstra.com ).
Brief disclosures that Telstra made for intangible assets in its annual statements as at 30 th June,
2014
Telstra disclosed that it had intangible assets of $6,382 million as at 30 th June, 2014 as compared to
$8,202 million that the company disclosed during the same period in the previous year. This
represented a 29% decline in intangible assets in 2014. Intangible assets constituted about 16% of the
Running Head: Accounting 3
total non-current assets that the company reported in the financial year ending 30 th June, 2014. The
company went further to expound on how these intangible assets were computed in its Notes to
Financial Statements in Note No. 14( www.telstra.com ). The Intangible assets were made up of
goodwill of $395 million and internally generated intangible assets which included software assets
developed for internal use of $4,265 million. Acquired intangible assets also formed part of the
intangible assets that the company reported in the financial year ending 30 th June, 2014. Acquired
intangible assets were made up of patents and trademarks of $12 million, licenses of $816 million,
customer bases valued at $ 42 million and brand names of $ 9 million. Deferred expenditure was also
included as part of intangible assets and was valued at $843 million ( www.telstra.com ). The company
has gone ahead to explain how the intangible assets were incurred in the same note to the financial
statements. The company closed the year with software assets that were under development which
were not ready for use and which were recorded as intangible assets. The company capitalized costs
for borrowing that related to the software assets and spectrum licenses and captured them as
intangible assets ( www.telstra.com ). Deferred expenditure related to deferral of direct incremental
costs that were incurred by the company to establish customer contracts. These costs were amortized
in the income statement to goods and services purchased during the period. Connection and basic
access installation fees were also included in deferred expenditure that formed part of the intangible
assets in the financial year ending 30 th June, 2014
(http://www.telstra.com.au/uberprod/groups/webcontent/@corporate/@aboutus/documents/document
/uberstaging_280884.pdf).
Disclosures made by Telstra on intangible assets and their consistency with the requirements of
paragraphs 118 – 123 and paragraphs 126 – 128 of AASB 138 on Intangible Assets
Running Head: Accounting 4
According to paragraphs 118-123 and paragraphs 126-128 of AASB 138 on intangible assets,
Telstra is required to disclose internally generated intangible assets and other intangible assets or
intangible assets that are not generated from within the company (Deegan, 2012). Telstra has
endeavored to do that to some degree in its annual report for the financial period ending 30 th June,
- The company is required by paragraph 118 of AASB 138 on intangible assets to disclose
whether the useful lives of the intangible assets are finite or indefinite (Deegan, 2012). The company
has not disclosed this fact for all the intangible assets listed in its annual report for financial period
ending 30 th June, 2014. The company is also required to provide amortization rates used which have
not been provided. The treatment of intangible assets by Telstra is therefore in contravention to
paragraphs 118-123 and paragraphs 126-128 of AASB 138 on intangible assets. For intangible assets
with finite useful lives, the company is required to disclose amortization methods used in treating
these assets which has been provided for some of the assets but not for all of them (Deegan, 2012).
Paragraph 118-123 and paragraphs 126-128 of AASB 138 on intangible assets requires that the
company discloses its gross carrying amount and any accumulated amortization. Telstra has provided
this information on page 113 of the annual report for the financial year ending 30 th June, 2014.
Reconciliation for the carrying amount is also a requirement in paragraph 118-123 and paragraphs
126-128 of AASB 138 on intangible assets. This is a requirement that Telstra has fulfilled on page
113 of the annual report. Amounts amortized on the intangible assets are to be expensed in the
income statement for the period; a requirement that has been complied with by Telstra
(Devalle &Rizzato, 2012; http://www.aasb.gov.au/admin/file/content102/c3/AASB138_07-
04_ERDRjun10_07-09.pdf ).
The company is also required to group assets of a similar nature and use in the method it treats
intangible assets. Telstra has treated intangible assets according to use and similarities in how they
Running Head: Accounting 5
are used. Licenses are treated or grouped together, masts are grouped together, customer bases are
grouped together and deferred expenditures are also grouped together in accordance with paragraph
118-123 of the AASB138 on Intangible Assets (Deegan, 2012). An entity is also required to disclose
information on intangible assets which Telstra has done in its annual reports as at 30 th June, 2014. The
company has not however provided an assessment of the useful life of some of its intangible assets
and the residual value which is in contravention of the paragraph 118-123 of the AASB138 on
Intangible Assets ( www.telstra.com ). According to paragraphs 126 – 128 of AASB 138 Intangible
Assets, Telstra is required to disclose the aggregate amount of research and development expenditure
and the amount should be treated as an expense in the accounting period. Telstra has consistently
done that as it included research and development expenses of $4 million incurred as part of the
operating expenses for the period and expensed them in the income statement. The company also
disclosed intangible assets that were fully amortized and those that were not in accordance with
paragraphs 126 – 128 of AASB 138 Intangible Assets
Running Head: Accounting 6
References
Deegan, C. (2012), Australian Financial Accounting, 7 th edition, McGraw Hill
Devalle, A., PhD.,&Rizzato, F., PhD. (2012). The impairment test of goodwill and the quality of
mandatory disclosure required by IAS 36.: An empirical analysis of european listed
companies. GSTF Business Review (GBR), 2(1), 1-6.
