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Chose a company which is listed under the Australian securities exchange (ASX) to analyse. (Remember that you are not permitted to choose JB Hi-Fi Ltd, West-farmers Ltd, Woolworth Ltd and Qantas Ltd.) Chose an industry with which you are familiar. You are required to build an assessment of the new firm using any research means at your disposal; however you should include in your research information released by the media (news, newspapers, and industry magazines), academic information, and a comprehensive ratio analysis with industry comparisons. Please use the figures provided in the most recent annual reports. After you have uncovered the relevant inherent risks, you are required to suggest suitable control elements that may mitigate the impact of those risks on the firm. The report should be concise and need to use the executive report format to attract 25% of marks. Word limit is 1500 words.
For the success of an audit, it is necessary to develop an effective plan which focus on major risk areas of an organization and allow auditors to perform efficiently. As per Auditing and Assurance Standard Board's Auditing Standard ASA 315, a risk assessment of Telstra Corporation Limited is carried out. This report provides an overview of Telstra and its environment, identifies risks of material misstatement and the suitable control mechanisms are recommended.
Company Background – Telstra Corporation Limited
Founded in 1901, Telstra Corporation is one of the leading telecommunication service providers in Australia which offers 17.4 million mobile services, 6.8 million fixed voice services and 3.5 million retail fixed broadband services (Telstra Corporation, 2017). It major markets include businesses, governments, communities, and individuals in Australia and international markets (Appendix 1). In 2017, it reported total revenue of AUD 2.6 billion and a total income of AUD 2.8 billion (Telstra Corporation, 2017) from its product and service offerings (Appendix 2). Its governance framework is designed to offer clear information for decision making and accountability across its operations and provide guidance on the standard behavior expected out of the governing bodies and employees (Appendix 3). The total number of listed shares is 11,893,297,855 which are held by leading local and international investment firms and their nominees (Appendix 4). Its major competitors are Optus and Vodafone.
There is an increased level of market consolidation among leading telecommunication service providers as they try to achieve scale to gain competitive advantage as there an increase in NBN rollout nationally (MorningStar, 2018). There is a growing demand for data services among consumers due to increased subscription rates of video-on-demand services like Netflix (ACCC, 2015). The rollout of the NBN is set to continue with differing opportunities and challenges for telecom providers and redefining the competitive scenario in aggregation and backhaul markets. There is a growing prominence for consumer protection in the communications industry due to the sophisticated products and services, and the increased use of NBN which drive customers to demand accuracy and information clarity for decision making.
Inherent Risks in the Operations of Telstra Corporation Limited
Though Telstra is not a cheap provider of telecommunication services, it is one of the low-cost providers considering the EBITDA margins of around 40%. When compared to its peers, Telstra offers higher dividends to its shareholders. However, this would be affected in the coming years due to the roll out of the national broadband network (NBN) in which the traditional copper and cables networks are being decommissioned. As the compensations are expected to reach AUD 11 billion, it is expected to underpin the dividends set out for shareholders.