Audit And Assurance Of Telstra Company: Major Assessment Answer

pages Pages: 4word Words: 890

Question :


Word Limit – 2,000 words**

**Penalties will be applied if your assignment exceeds 2,200 words

(Word count excludes reference list and appendices – it includes in-text referencing, headings, text contained in tables and footnotes)


TELSTRA is a large Multi-National company. For more company information and annual reports see:

You will be required to assess and analyse TELSTRA from an auditing perspective, in the period leading up to 26 April 2019. Although the reporting date for TELSTRA is not the 26th of April, for the purposes of this assignment, we will be assuming that the reporting period for TELSTRA is 27/4/20XX-26/4/20XY. This will allow you to collect articles up to and including the 26th of April 2019.

The Internet is a valuable source of information for obtaining background information on a client, as well as the UniSA Library databases (e.g. EBSCO/ProQuest) available on the UniSA library link on the Subject Homepage. The link to the UniSA library HomePage is here: You are encouraged strongly to use the Internet and other media to assist you in collecting further information relating to TELSTRA. To do well in the assignment, it is required that you will undertake research on the entity beyond merely the TELSTRA homepage and their annual reports.

Important Note to Students

  • The focus of this assignment is to illustrate the importance of planning the audit of a reporting entity and to gain an understanding of the role of the auditor in an accounting environment. TELSTRA, as a live case provides students with the opportunity to experience more ‘real’ issues in the planning of an audit.
  • You will focus on collecting information relating to TELSTRA in the period leading up to April 26 2019 (as a general guide, you should focus your identification of appropriate information in the period 1 July 2018 onward for issues that will affect the planning of the audit for the period ended 26 April 2019). I do not want you to be beyond this period so any articles focusing on the period prior to the 30th of June 2018 should not be used in this assignment.
  • The objective of this assignment is to illustrate the nature of auditing and how it is integrated into the financial reporting framework – as all topics are connected in some way. The identification of relevant events, for example, will be important in identifying relevant risks of misstatement, as events often give rise to the identification of risks of material misstatement. It is this integration of the topics that makes auditing unique.
  • This ‘live’ case is only being used to illustrate the importance of planning an external audit. As such, please do not assume that this is a first time audit of the entity – you are to use the TELSTRA case like an auditing training tool rather than undertaking the audit of TELSTRA yourself. This means that you have to be very specific with your identification and discussion of relevant risks associated with the audit of the entity. The textbook for example, on pages 239–241 outlines some “generic” inherent risks which may be relevant in assessing inherent risk. One of these general inherent risks identified in the text is “initial versus repeat engagement”. Students cannot for example, use this as a discussion of a potential misstatement as this is a broad generic risk and we are also assuming that you are not the auditor of the entity. It also makes it almost impossible to identify a specific potential misstatement in the financial reports associated with this risk or specific impact on the audit of the entity – one of the key requirements of the assignment is to identify specific potential misstatements so you need to stay away from identifying and discussing broad general issues. Students who identify this as an initial engagement as one of the risks associated with the entity, will receive no marks for discussion of this risk.
  • Academic Integrity: Please be aware of the dangers of plagiarism – we use Turn-it-in software and it is VERY reliable. Please refer to the discussion on academic integrity on the Subject website – if you are caught and found responsible you will, as a minimum, score zero for a piece of assessment. Use the software available to you to ensure that your work, once submitted, meets the requirements of the University and is representative of YOUR OWN WORK. Try your best in this assignment. Part of the learning process is to apply the theory you have been learning in your degree to a practical situation. Such skills are vital when you are working in a professional environment and will hold you in good stead for your professional career.


  1. Identify what you consider to be four ‘key’ events that could have an impact on the audit of the TELSTRA Group for the year ended 26 April 2019 and/or future audits. (For the purposes of this assessment we are assuming the reporting date is the 26th of April, not a traditional balance date). For each of the events identified above, describe the event clearly and state how and why you consider the event may create the risk of potential material misstatement in the financial statements of TELSTRA for the year ended 26 April 2019. You are expected to identify four (4) critical events that have occurred within the relevant reporting period. You are required to identify appropriate and relevant references to specific Accounting Standard(s) (mandatory disclosure requirements or requirement for specific procedures related to the amounts to be shown in the financial reports) as part of your discussion of the potential misstatement. You must also identify an appropriate audit objective which you think is relevant to each of the risks you have identified and explain how you arrived at the identification of the audit objective (i.e. you must justify the identification of the audit objective). 
  2. Using your understanding of the audit evidence mix, discuss briefly how each of the risks you identified will impact on the evidence mix for the planning of the audit of TELSTRA. When referring to the evidence mix to use, reference should be made to the tests of balances, transactions and analytical procedures and the like (refer to the lectures for a complete list of types of evidence used by the auditor), indicate which specific areas in the accounting system would be critical and comment on the nature and extent of the testing required (see guidance notes in appendix). HINT: You are only required to assess the evidence mix for each individual event identified and determine an appropriate evidence mix for that specific event. You are not required to identify an overall inherent risk and audit risk assessment for the entity. You are not required to determine an overall evidence mix for the entity. Focus only on the impact of each individual risk on the evidence mix required to assess the impact on each risk you have identified. 


Refer to Appendix four and guidance notes in Appendix two.


The above should be read in conjunction with the guidance notes, in the appendices at the back of this assignment booklet.

Appendix 1 Appendix 2

Appendix 3 Appendix 4 Appendix 5

Index to Appendices

Submission of assignment Assignment guidance notes

  • -  Word limits 
  • -  Late lodgement penalties 
  • -  Objectives of the assignments 
  • -  Assignment Broad Guidance Notes Frequently Asked Questions and hints Assignment feedback sheet/marking schedules Submission of a draft for question 1 

APPENDIX ONE: SUBMISSION OF ASSIGNMENT: Students will NOT be permitted to submit an assignment in a team. This assignment must be done


Students are reminded to maintain backups of their assignments. Please get into the habit of backing up your assignment on a regular basis (every time you work on your assignment you should create a backup). If something goes wrong, minimise the risk of losing work! Students are responsible for ensuring they maintain a backup of their work. A corrupted assignment with no backup available cannot be used as a reason to request an extension for the assignment. I know how hard it is to manage time when studying numerous Subjects and working at the same time. This places pressure on your time and being able to start the assignment with ample time to complete. Don’t leave it to the last minute to start the assignment as this is when you increase the risk of making mistakes such as corrupting your file, deleting the wrong version of your assignment etc.

Please make sure that the file you upload onto Learnonline is the final version of your assignment. The file which is uploaded onto the website is the file that will be marked and the file used to finalise your grade for the assignment.


Word limits

Please include the number of words in your assignment on your title page. Assignments should be presented in a succinct business-like writing style and you should avoid repetition and irrelevant information. As a broad guide, your assignment should absorb no more than 2,000 words, though the assignment can be completed in fewer words (there is no minimum to the words you use to answer the assignment). Quality of the information presented will, however, be the important factor rather than quantity. Penalties will be applied if you exceed the upper word limits (in this case, 2,200 words); the application of penalties is at the discretion of the co-ordinator and will reflect the amount of the word limit exceeded – e.g. if you exceed the upper word limit by 10% you will receive a penalty of 10% of your mark. Please note, to be fair to all students, if, for example, the assignment is submitted with a word count of 2,250 the penalty for going over the word limit will be based on exceeding 2,000 words. In other words, the penalty applicable in this case will be 250/2000 = 12.5% rather than 50/2200 = 2.3%. It will not be based on using 2,200 as the basis for calculating the percentage penalty. The additional 200 words are given in case some students are “just over” the 2,000 word limit and to allow me some discretion in the marking process.

The following are EXCLUDED from the word limit calculation:

  • -  Title Page 
  • -  Reference list 
  • -  Appendices 
  • The following are INCLUDED in the word count 
  • -  In-text Referencing 
  • -  Heading and Sub-headings 
  • -  Words contained in tables (e.g. headings for tables) appreciate this may differ from the rules used for the calculation of word limits in other subjects. However, these are the rules applicable to this subject. If you include text in an appendix, it is not part of the word limit. However, the content of the appendix will not be used in determining whether you have answered the question. In-text referencing is included in the word limit. Again, I appreciate these rules may appear to be somewhat harsh but you should find no trouble in keeping within the required word limit for this assignment. If you are struggling to stay inside the word limit, you are writing too much and need to consider where you can be more succinct in your discussion. 

Late lodgement penalties

Late lodgement penalties of 10% of the maximum mark apply for each calendar day (including weekends), or ANY PART thereof if an assignment is lodged at any time after the due date and time. This is applied rigidly to ensure that ALL students are treated equally and equitably and that no-one receives an unfair advantage. As such please do not leave it to the last minute and think you can lodge ‘a few minutes’ late and avoid a penalty.

Objectives of the assignment

Students are provided with the opportunity to research information relating to a real world entity. The issues raised are from real-world situations and require application of accounting knowledge and auditing theory. Many students find assignments based on the real world difficult because many of the issues confronting them are practical and, therefore, unfamiliar. The following notes are intended to help you structure your responses and also indicate how marks will be awarded.

Although the “reporting date” for the entity is assumed to be the 26th of April, students may still use the annual reports to assist with their assignment i.e. students can refer to data from the annual reports when trying to argue the potential for a specific material misstatement.

You are assuming the audience for this assignment is a managing partner of an auditing firm and you are preparing a set of notes for the partner to use to prepare for the audit. Therefore, the assignment is pitched in a professional environment. Being able to present a succinct piece of work to your “manager” is a critical skill as a graduate. Do not embellish and write too much! Your assignment is being pitched to someone who already has a strong understanding of the material hence you can write it with this assumption in mind. If you are in doubt, do not hesitate to contact me (the coordinator) if you think you are writing too much. Remember YOU ARE NOT CONDUCTING THE AUDIT OF TELSTRA. This means you can assume the target audience for this assignment has a thorough understanding of the theory so you do not need to explain the theory.



Question 1

Identify what you consider are four (4) key events which would impact on the audit of TELSTRA. You are encouraged to use financial information relating to TELSTRA and the industry in which it operates for the period in question. Discussing the announcement of profits, budgets or dividends or revised financial forecasts, of themselves, is not considered a major event, and this will not accrue any marks if identified and discussed in your assignment. Non-financial information can be a goldmine which can assist you in identifying potential misstatements by giving you clues as to what to research.

Be careful to answer the question – that is, it asks what are the “key events”. You should be clear about what “key events” mean. Another way of looking at it is to ask yourself what are the “areas of concern” associated with these events? Overall these terms mean what areas of the financial statements are there likely to be risks of material misstatements (which might ultimately impact on the auditor’s opinion and report). Specifically, the information may lead you to think that some areas may have an error (mistake) in them as a direct result of certain events or issues that the company has experienced during the period. Your task for this assignment is to identify that information and how and why it may present a possible risk of material misstatement in the financial reports. The misstatement(s) are identified by referring to the relevant Accounting Standard(s) and paragraphs within those Standard(s).

Further, you will need to clearly explain why and how you have arrived at each event and the potential misstatement from each of these events. Simply stating information relating to the event without applying it to something specific from the Accounting Standards will not attract any marks.

How you set out the answer to question 1 is up to you, but you must clearly address all aspects of the question:

  1. What is the event? (A simple explanation will suffice for this part of the question). This is usually a brief explanation of the event that has occurred during the reporting period which has the potential to impact on the financial reports. This is critical. You must identify an event that has occurred during the period. You can assume that at the start of the period (27/4/18), the

financial reports were free of material misstatement. So you are starting with a set of reports which are correct.

This means you need to find something that has happened this year which may create the potential for misstatement. As an example, you may be thinking that the entity deals with foreign exchange which is complex in nature and therefore can create the potential for misstatement. This is, on the face of it correct. In general foreign currency will create the potential for material misstatement due to its complexity and the nature of events related to foreign currency.

However, if the reports are free of material misstatement at the start of the period, any events involving foreign currency from prior periods can be assumed to have been tested by the auditor(s) and verified to ensure there are no misstatements at the end of last period (start of the current reporting period).

Hence, if the entity did not undertake any events involving foreign currency in the current period, the risk of misstatement due to foreign currency would be irrelevant to the entity this year and the risk of misstatement associated with foreign currency would be minimal. Hence you could not discuss foreign currency in these circumstances. You need to identify a specific event which has occurred which would require the use of appropriate disclosure requirements associated with foreign currency to make it relevant to the assignment.

If however, you found an event occurring during the period involving the need for foreign currency, you could now identify foreign currency as an inherent risk and a potential source of misstatement in the financial reports. The event itself would be the reason for potential misstatement. In other words, focus on things that have occurred during this period which tell you that you now need to investigate for potential misstatement. If nothing has occurred this period to change the accounts associated with (for example) foreign currency, then you cannot argue that foreign currency would create a risk of potential missatement for this reporting period. Remember you are trying to help the auditor save time when doing the audit so what you are saying is if there are no major events associated with a particular area (foreign currency, leasing, etc), then there is less need to allocate resources in the audit to assess the potential for misstatement in those areas of the financial reports.

  1. What is the specific risk of material misstatement? (To do this, you need to explain and give an example of a specific potential misstatement that could occur as a result of the event). Do not simply state “this will cause potential misstatement” or ‘this may result in fraud’ or ‘the directors will misstate the financial statements’. When looking at the term “misstatement” you can approach this one of two ways – you can discuss a potential misstatement in the form of the dollar amount being misstated or you can identify and discuss a potential disclosure requirement outlined in the Accounting Standard(s). Whichever one you choose to use you must still provide a specific example of a potential misstatement that could occur (i.e. a specific aspect of disclosure as per the Accounting Standards – you must refer to the Australian Accounting Standards or the International Accounting Standards) when answering question 1. This is not as easy as it sounds. The potential misstatement must be specifically related to TELSTRA and be both reasonable and plausible.

You need to link your discussion to the financial reporting framework – in other words, you need to find something in the Accounting Standards which you can link directly to the discussion of the risk identified. This is critical in getting a good grade for the assignment. A discussion of specific procedures outlined in the relevant Accounting Standard(s) is expected.

For example, if you identified an event in question 1, which was associated with a contingent liability, it is expected you would discuss AASB137 and a specific provision from this Standard. Note you are identifying relevant Accounting Standards and paragraphs from the Accounting Standards. You might need to refer to, for example, paragraphs 36-41 relating to the measurement of the liability and the need to use judgement. You would also highlight the need to disclose the uncertainties associated with expenditure as per paragraph 44 of AASB137.

You are not required to identify a relevant Auditing Standard in question 1. The focus is on identifying the reporting aspect (i.e. compliance to a mandatory recording or disclosure requirement). You may identify Auditing Standards if you wish (for example, you might discuss ASA501 if you were talking about inventory in the misstatement discussion) but it is not a requirement for this assignment. The assignment is highlighting the importance of understanding accounting to be able to undertake a successful external audit. If you don’t know your accounting, you will not know what to audit and hence you cannot do an audit.

Make sure you have a look at the example on the Subject website for further guidance relating to the expectations placed on students in answering question 1.

3. What are the appropriate audit objective(s) applicable to the potential misstatement identified in your discussion in “1” above? You may discuss either transaction related and/or balance related audit objectives. A hint – it is much easier to identify balance related objectives in this assignment due to the nature of auditing and the limitation in gaining access to the processing systems for the entity – this is not to say you cannot identify transaction related objectives, it is just that it is harder to identify and then justify a transaction related objective.

There has been ample discussion of TELSTRA and the entities it owns (and the events impacting on them) in the financial press in the last 18 months. This should provide you with a wealth of information to use to answer the questions in the assignment. Identify what you consider to be relevant (and specific) events that will impact on the planning of the audit for the reporting period. You may find that some of the information could be relevant for more than one reporting period. The UniSA library has an excellent serials database within EBSCO Host

Students are not expected to explain the theory applicable for this assignment. For example, the definition of inherent risk or acceptable audit risk does not need to be explained or defined in your assignment. Likewise, a discussion of why it is important to identify major events in the planning of an audit is not required. Students should focus on applying the theory to a practical environment. Be efficient in the use of your word allocation – focus on answering the questions rather than embellishing on the information used for the assignment. Remember you are writing this report for your audit partner – your audit partner will know the theory so don’t explain it in your report.

You may use ‘bullet points’ in answering this question, but correct and adequate sentence structure must be adhered to, in addition to referencing protocol. The target audience is your “manager” in an accounting firm. Therefore, you need to be succinct, professional and clear in your communication to ensure your message is made clear to the person reading your work. Do not do what I have done in this assignment booklet! The reason this booklet is so detailed and lengthy is because I want to make sure you know exactly what to do. To pre-empt your questions. When you create your report (assignment) keep focused on the word limit. If you find that you do not need 2,000 words to complete the assignment, that’s fine. You will not be penalised for not writing enough. Please do not use a table to answer this assignment. You will be penalised significantly in the presentation mark if you use a table to answer this assignment i.e. if it takes the form:

What is the risk (event)What are the potential misstatements

What is the
relevant Objective
Event (Risk) 1

Risk 2

As a general example, you might find an article which says that 380 staff will have their jobs terminated due to a restructure of the entity1. This may be a risk because terminations normally involve the calculation of employee entitlements which are complex in nature as per AASB119 and the need to create provisions for employee redundancy. Hence, there is a greater chance that there will be calculation errors due to things such as eligible termination payments (paragraph 68), and leave entitlements (paragraph 153). You must provide specific examples of potential misstatements that could occur in the financial reports. Students will not be allowed to use staff redundancies and the associated calculations of employee entitlements as a major event. No marks will be given to the identification and discussion of staff redundancies (potential or otherwise) as it relates to TELSTRA.

Please note that this question will take you a bit of time to complete. It is therefore advisable that you do not leave this to the last minute to begin. As always, you are welcome to post questions on the discussion forum before submitting. If you leave it to the last minute, it is unlikely you will receive the assistance that you require to complete the assignment. It is reasonably expected that students will have good research skills so we will not be providing research hints for you.

IMPORTANT: The announcement and use of financial results (or subsequent payment) of profits/losses and forecasts or dividends and information about profit forecasts by TELSTRA (irrespective of magnitude) does not constitute an event or inherent risk of significance relevant to the assignment and will not accrue any marks. You are required to research the company and identify specific TELSTRA events which will assist in the planning of the audit. I expect you to research the entity by going beyond the annual report and the entity’s homepage. Students cannot use the annual report financial figures to drive the identification/discussion of a risk of misstatement. For example, students cannot identify a risk as “the allowance for doubtful debts increased by 45% in the current financial period. As the allowance is an estimate, there is potential that a misstatement has occurred due to the significant change in the balance in the last 12 months”. Impairments are a good example of what to look for in your research especially in the telecommunications industry.

This does not mean you shouldn’t use the financial report figures at all. Far from it. If you found that a balance such as the balance in property plant and equipment account changed by 45% in the last 12 months, you should look at doing an Internet search to find the reason why such a significant change in the balance occurred. This might then uncover an event or issue that occurred during the current period which then becomes your risk factor. For example, there may have been a significant downturn in the consumer market during the period. The potential outcome of that risk is then the potential for the commodities on hand balance to be misstated. It is these subtle changes in your thought process which can elevate you

1 (The event is from 2015 and although about BHP, is used for illustrative purposes only. from a solid mark to an outstanding mark both for the assignment and the final examination.

A common mistake made by students (especially if they are running out of time) is to simply use the annual reports and the entity’s website to identify key risks. It is easy to see that you have not made the effort to undertake independent research to support your work and your marks for the assignment will reflect this. Likewise, using the general inherent risks discussed on pages 239–241 of the textbook in the assignment is too broad. You should still read these pages to gain a better understanding of how to identify a risk of misstatement but once you have done this, go to Appendix 2 of ASA315, look at the examples in the appendix and then start looking for the possibility of these examples being relevant to TELSTRA in the current “reporting period”. Be careful though – not all of the examples in Appendix 2 relate to inherent risks. Some relate to the internal control environment. Focus on those that give rise to the potential for misstatement as a result of the existence of (an) inherent risk. Identifying the correct ones to use from the list in Appendix 2 forms part of the assignment process. Look at the list as a set of potential areas to investigate to see if an event has occurred during the period which may give rise to misstatement in the financial reports.

Do not use fraud or examples of potential fraud in your discussion of potential misstatements. It is dangerous to start questioning the integrity of management for the entity and trying to identify a specific potential misstatement when looking at fraud, is very hard to do. The easier approach is to look at potential errors that can occur which are based on the Accounting Standards and your assumed knowledge from your prior accounting studies. Using fraud as an example is also very difficult because it is hard to think of something that is both plausible and specific enough to meet the requirements of the assignment.

Question 2

An auditor is required to collect sufficient appropriate evidence to form an opinion. This is the case for the whole audit and applies to your analysis of the risk identified in question 1. Having identified specific events that may give rise to a risk of potential misstatement you are now required to determine how you would assess these risks. In other words, what would be considered sufficient evidence to collect to assess the events identified in question 1?

Make sure you understand what I mean by evidence. In this case, I am talking about the 5 key types: tests of control, tests of transactions, gaining an understanding of internal control, tests of balances and analytical procedures. The accumulation of evidence based on these 5 types of evidence forms the “evidence mix” needed to assess the event identified in question 1. Therefore, you need to discuss the 5 types of evidence and how they relate to the assessment of each event identified in question 1. For example, if you identified staff redundancies as a major event, the potential for misstatement would relate to the calculation of entitlements and redundancies and potentially, taxation implications. The evidence mix would

therefore focus on increased tests of controls and increased tests in gaining an understanding of the internal control environment because a reduced workforce will impact on the controls of the entity. The calculation of the redundancies would represent tests of balances (they are not transactions) hence there would be an increase in the tests of balances. Analytical review would be extensive (it is always extensive because of the costs associated with implementing this type of testing) and tests of transactions would be low.

You can use “low”, “medium” or “extensive” in determining the amount of testing to be undertaken by the auditor for each type of evidence. Make sure you address all 5 of the types of evidence in your discussion in question 2.

Have a look at the material covering evidence and then the audit risk model and the steps involved in determining the evidence mix and apply this to the areas of TELSTRA which you identified in question 1. As always, be as specific as you can.

Do not discount the importance of non-financial information in determining the evidence mix. You may find information identified in question 1 relevant to this question. As a very simple example, you may have identified in question 1 that TELSTRA has just been sued for breach of contract in relation to the failure to deliver a shipment overseas to a major customer (clearly this has been made up and is used for illustrative purposes only) and the case is proceeding through the Courts but will not be settled for some time. You may use this to supplement your discussion and indicate that the auditor will need to discuss the issue with the entity’s solicitors to gain further understanding of the impact on the financial reports. You should still discuss the 5 types of evidence in your answer.

This example is very general and is used only as a broad indicator of strategy in answering the question.

Ultimately, you are being assessed on your ability to link the information you have obtained to the assessment and discussion of the major event. Refer to the textbook for further information regarding evidence mix – you will need to discuss all aspects of the evidence mix relevant to each main area of risk. You are not required to provide an overall assessment of inherent, control, detection and acceptable audit risk for the entity. Your focus in question 2 is to identify the levels of risk associated with the individual events only.

Focus only on the impact of the individual event(s) identified on the approach of the auditor to collecting sufficient and appropriate evidence to assess the recording and disclosure of the event on the financial reports identified in question 1.


IMPORTANT: While independent research is required you will still need to reference any information you have used from the entity’s annual reports. Specifically, you will need to reference the information back to the relevant pages in those annual reports. Failure to do so could result in problems with plagiarism and charges of academic misconduct.

10% of the overall mark for the assignment has been allocated to assessing your presentation skills. This will be based on the following:

  • Effective compliance with research conventions—Correct In-text referencing/properly formatted reference list/appropriate citations etc.
  • Expression and grammar
  • Organisation and layout
  • Ability to identify and present KEY issues.

A significant aspect of the presentation mark is allocated to the referencing of your work where you have used other sources. I cannot understate the importance of correct referencing. Any ideas which are those of someone else, or any direct quotes from another source must be adequately referenced to avoid potential problems with academic misconduct.

You are also being assessed on your ability to identify and apply appropriate research (beyond the textbook and the homepage of the entity) to your answer. You are also being assessed on your ability to identify and integrate a discussion of appropriate Accounting Standards in question 1 of the assignment. Minimal reference to the Accounting Standards in question 1 will be reflected with a lower mark for presentation.

I refer you to the Subject Outline in relation to the submission guidelines for the assignment. Students who do not follow the submission guidelines will be required to re-submit their assignment to the Subject Coordinator. Your assignment may not be marked if you do not follow the guidelines.

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Answer :

Audit and assurance 

Telstra Company


With the ramified economic changes, audit and assurance program is imperative to strengthen the transparent view point of the financial statement of the company. In this report, audit events, risk associated with it and audit objectives have been discussed. The chosen company for the audit and assurance program for this report is Telstra Company. It is an international company which has been operating its business in telecommunication business. However, due to the increased business complexities international reporting frameworks, this company has been facing various audit risk and key events which may result to material key misstatement in company (Telstra Company, 2018).





The Australian Competition and Consumer Commission (ACCC) have already approved the NBN migration plan proposed by Telstra through the process of “In Train Order” (ITO). However due to the possible effects of this proposed transaction, certain adjustments in the Executive Variable Remuneration plan (EVP) have been made. These adjustments have a net effect of $295 million on the financial results of year 2017 in the positive side. (Telstra Company, 2018). However the company has recorded a drop in the net profit of Telstra by 8.9% for year ending on 30th June 2018. For the half year results declared for the period ending on 31 December 2018, a decline of 4.1% in the total income is reported. Some part of this decline is also attributable to the decline observed in the average revenue per user (ARPU). It is also estimated that due to NBN every year approximately $2 billion to $ 3 billion of impact shall be seen in the earnings (earnings before interest, depreciation, tax and amortisation) on the negative side. However, the major effect is seen due to the involvement of management estimation in the adjustments required for Executive Variable Remuneration plan.  These affects that have been observed in the last financial year, continues to affect the period ending on 26th April 2019. The estimations in the EVP adjustments are also required for this period in discussion (Telstra Company, 2018).


The AASB 2, Share – based payment comes in force in such situation. The estimation of the amount to be recorded as expense relating to the variable pay cannot be measured reliably. However, certain measures have been suggested by the paragraphs 16 to 22 of AASB 2. In the migration to NBN observed for Telstra, there is a possible risk of material misstatement that the estimation made by in relation to the Executive Variable Remuneration Plan is not done accurately. This probe a significant risk to the monetary figure represented for total earnings as EBIDTA is directly affected by it. The figure of profits for the period can get materially misstated due to the inaccuracy that might exist in the estimation (Telstra Company, 2018).


The audit objective that appears most relevant in the given event and the possible misstatement is “ACCURACY”. This seems the most appropriate audit objective as the possible misstatements is taking a toll upon the income statement directly. Further, the situation suggests that if there is any misstatement that relates to the estimation of EVP, that directly relates to the non-recording of the transactions, or recording with an error (Telstra Company, 2018).




Due to the NBN rollout, Telstra has experienced a downfall of 4.1 % in the total income, 16.4% in EBIDTA, and 27.4 % in NPAT in the half year results reported for the period ending on 2018 December end. The revenue had however shown to be fallen by just 1.7%. In the same period it is declared that the company has adopted newer accounting policies when it comes to the recognition of revenue. The key changes that have been observed for the same have been disclosed by the company though. The company has changed the old accounting policies from 1 July 2018 (Telstra Company, 2018).


As per the AASB 15, ‘Revenue from Contracts with Customers’ every organisation is required to disclose information relation to revenue that is “disaggregated”. The information must be consistent and material as well. However, for Telstra it has been the year of adoption of this standard. The old procedures have been replaced. There exist high potential that the company might have incurred certain errors in application of the standard either intentionally or unintentionally. The revenue amount report might not be accurate (Telstra Company, 2018)..


One audit objective that appropriately justifies this situation is ACCURACY. As the AASB 15 is applied for the first time, even unintentional errors might have happened that have hampered the accuracy to any extent. If any material temperament to the accuracy is seen, the same might affect the complete financial performance. Another possibility also exists that the complete transactions are not recorded in the statement of income, owing to which a fall in revenue is observed (Telstra Company, 2018).




The company has adopted the requirements of impairment model for the new financial assets from 1st July 2018 on a prospective basis. This is as per AASB 9, ‘Financial Instruments’.  Owing to this the company’s allowance holdings have shown a raise because now the company is required to make allowances even for the credit losses that are expected. The company has employed the exemptions that are provided in the standard and opted not to state the restatements that the comparative periods observe on account of the addition in the standard application (Chan,  Chiu, & Vasarhelyi, 2018).  The company declares to expect changes in the figure of retained earnings on the lower side due to the creation of larger amount of expected credit losses (Cannon, & Bedard, 2016). 


The organisation now is required to make an allowance of expected credit losses for impairment of financial assets as per the requirements of Paragraph 5.5 of AASB 9, ‘Financial Instruments’. The requirements stated apply as per the nature of the organisation. In the given situation, the entity has adopted this impairment model for the first time from 1st July 2018. There is a possibility that the entity has made certain mistake in the estimation that is required for the credit losses that are expected. The provisions that have been set by the AASB 9 are at stake because the entity is applying them for the first time (Telstra Company, 2018).


The audit objective justified in the case of given key event is of VALUATION. The creation of expected credit loss requires a lot of estimation about the future events. There is a possibility that the organisation have mistaken in making the correct estimates. This would bring an effect in the entire amount of the value of the expected credit loss balance (Abbott, et al. 2016). Due to this the value of the retained earnings shall also not be accurate. This is because the expected credit loss balance is ultimately reduced from the retained earnings (Telstra Company, 2018).




Telstra has committed to provide to its customers the data speed of 5G. The company has already committed to support the national 5G rollout by investing $386 million. The company plans to deploy more than 1000 cells in small size in metro areas to bring a boost in the capacity (Conrod, & Cumby, 2016). The ‘soon – to – be – availability’ for 5G connections is declared by the company. Due to the announcement of the news relating to the investment in the 5G rollout, the company’s capital commitments have been increased by $315 million (AICPA.2017). 


AASB 137, ‘Provisions, Contingent Liabilities and Contingent Assets’ requires the organisation to make appropriate recognition for them and apply accurate measurement base for contingent liabilities, provisions and contingent assets. The timing, nature and amount for each of them as applicable to the organisation must be disclosed by the organisation sufficiently. In the given case, the company has just stated the amount of the expected capital commitment. The details relating to the expected timing of the same have not been specified by the company (Cordoş, & Fülöp, 2015). There is chance of possible misstatement in relation to amount reflected for the capital commitments. Inclusion of fewer details suggests chances of error or inaccuracy of amount (Aprisilya, & Mawardi, 2016).


The given situation entails the audit objective to be VALUATION. There is an involvement of estimation and that estimation too depends upon uncertain circumstances. There is a complete possibility that the value which is imparted to the capital commitments is not accurate (Barman, & Sengupta, 2017).




The following discussion the evidence mixes that is required to obtain sufficient and appropriate audit evidence to phase out the chances of possible misstatements that have been identified in the given event in the above discussion. The given situation involves the judgement relating to the Executive variable remuneration plan. This signals the auditor the presence of high requirement of the analytical procedures and test of transactions because the income statement is directly impacted (Eilifsen, et al. 2017). The test of balance is however would be low due to the lower impact of the same on balances of balance sheet. There would be a requirement to check the test of control and also the understanding of the entity’s internal control is required to check the accuracy of operations (Heikal, Khaddafi, & Ummah, 2014).

Evidence mixAmount of testing
tests of controlMedium
tests of transactionsExtensive
Gaining an understanding of internal controlMedium
tests of balancesLow
Analytical proceduresextensive



There is a requirement to perform test of transactions as well as the analytical review to analyse the relationship between the several factors of organisation. The test of balance however is not much important. A look into entity’s internal control and test of controls would suffice the level of faith put upon the other evidences (Lakis, & Masiulevičius, 2017).

Evidence mixAmount of testing
tests of controlMedium
tests of transactionsExtensive
Gaining an understanding of internal controlMedium
tests of balancesLow
Analytical proceduresextensive



There is a high requirement to check the entity’s internal controls and perform test of controls and analytical review to see the level of reliability that could be placed over the estimation made. The test of balance is highly required as the balance sheet is affected directly. The test of transactions however could be kept low (Ruhnke, Pronobis,  & Michel, 2018).

Evidence mixAmount of testing
tests of controlExtensive
tests of transactionsLow
Gaining an understanding of internal controlExtensive
tests of balancesExtensive
Analytical proceduresExtensive



Evidence mixAmount of testing
tests of controlExtensive
tests of transactionsLow
Gaining an understanding of internal controlExtensive
tests of balancesExtensive
Analytical proceduresExtensive


After assessing the annual report of the company, it is assessed that company needs to strengthen its audit procedure and internal control system if it wants to lower down the material misstatement in its financial statement. However, due to the increased international reporting, company might have high inherent risk in its financial statement. Nonetheless, undertaken impairment test as per the IAS 136 has resulted to increasing the transparent view of the financial statement of the company. Now in the end, it could be inferred that the major event incurring the mismanagement in the financial statement of the company is seen due to the involvement of management estimation in the adjustments required for Executive Variable Remuneration plan which has resulted to contradiction in the financial reporting frameworks of the organization.