Refer to the 2019 Telstra annual report and Explain whether the adoption of AASB 16 Leases is likely to have a material effect on the reports of the company, or whether it has had a material effect if already adopted, with reference to your company’s leasing commitments. Include discussions relating to accounting for leases from both lessor and lessee perspectives. Provide references to your company’s report, as well as two relevant journal articles, and discuss the implementation of AASB 16, the major reporting changes and the likely effect of these changes.

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7.1 Other accounting policies (continued) (b) Other 7.3 Parent entity disclosures 7.3.2 Contingent liabilities and guarantees In March 2018, the International Accounting Standards Board (the LASB) issued a revised Conceptual Framework for Financial Reporting ('Framework') to be used immediately by the IASB but effective for Telstra from 1 July 2020. We do not expect the practical When estimating the right-of-use asset and the lease liability as at 1 consequences of the new Framework to be significant in the short July 2019 for our transitioning operating leases where Telstra Group term. However, our assessment of the impact arising from the 7.1.3 New accounting standards to be applied in future reporting periods (continued) (a) Common law claims This note provides details of Telstra Entity financial performance and financial position as a standalone entity. The results include transactions with its controlled entities. Certain commonlawclaimsby employees and third parties areyetto be resolved. As at 30 June 2019, management believes that the resolution of these contingencies will not have a significant effect on the Telstra Entity's financial results. The maximum amount of these contingent liabilities cannot be reliably estimated. (a) New leasing standard (continued) is a lessee, we have used the following practical expedients for all similar leases on a consistent basis (as opposed to on a lease-by- lease basis as allowed by the standard): amendments is ongoing Tables Aand Bprovide a summaryof the financial information for the (b) Indemnities, performance guarantees and financial support Telstra Entity. We do not expect any other recently issued accounting standard or amendment to have a material impact on our financial results upon We have provided the following indemnities, performance guarantees and financial support through the Telstra Entity: • indemnities to financial institutions to support bank guarantees to the value of $229 million (2018: $189 million) in respect of the performance of contracts • indemnities to financial institutions and other third parties in respect af performance and other obligations of our controlled entities, with the maximum amount of our contingent liabilities of $135 million (2018: $133 million) • letters of comfort toindicate support for certain controlled entities to the amount necessary to enable those entities to meet their obligations as andwhen theyfall due, subject to certain conditions (including that the entity remains our controlled entity) during the financial year 1998, we resolved to provide IBM Global Services Australia Limited (BMGSA) with guarantees issued on a several basis up to $210 million as a shareholder of IIBMGSA. During the financial year 2000, we issued a guarantee of $68 million on behalf of IBMGSA. During the financial year 2004, we sold our shareholding in this entity. The $68 million guarantee, provided to support service contracts entered into by IBMGSA and third parties, was made with IBMGSA barikers or directiy to IBMGSA customers. As at 30 June 2019, this guarantee remains unchanged and $142 million (2018: $142 million) of the $210 million guarantee facility remains unused. Upon sale of our shareholding in IBMGSA and under the deed of indemnity between shareholders, our liability under these performance guarantees has been indemnified for all guarantees that were in place at the time of sale. Therefore, the overall net exposure to any loss associated with a claim has effectively been offset. • we have applied a single discount rate to portfolios of leases with adoption. characteristics which we have assessed to be reasonably similar • we have elected to rely on our assessment of whether leases are onerous under AASB 137 'Provisions, Contingent Liabilities and Contingent Assets' as at 30 June 2019 instead of conducting an impairment review • for leases of our personal computers and multifunctional devices, for which the underlying assets are of low value, we have not made any adjustments on transition and as a result the lease payments under these contracts will generally continue to be recognised on a straight-line basis over the lease term as other operating Table A Telstra Entity As at 30 June 2019 2018 7.2 Auditor's remuneration Restated Sm $m Our external auditor of the Group is Emst & Young (EY In addition to the audit and review of our financial reports, EY provides other services throughout the year. This note shows the total fees to external auditors split between audit, audit- related and non-audit services Statement of financial position Total current assets 6,959 7,053 Total non-current assets 38,194 38,215 Total assets 45,153 45,268 Total current liabilities 13,378 12,750 sosuedxe • we have no initial direct costs included in the measurement of the right-of-use assets at initial application of the standard • we have elected to utilise hindsight in determining the lease term for contracts that contain options for extension or termination of the lease. Total non-current liabilities 17,625 18,406 Telstra Group Year ended 30 June Total liabilities 31,003 31,156 2018 Sm 2019 Share capital Cash flow hedging reserve 4,447 (200) 4,428 $m (211) Audit fees Foreign currency basis spread reserve (21) (6) Based on our transition approach and the practical expedients used, the initial application of AASB 16 as at 1 July 2019 is expected to result in recording in the statement of financial position right-of-use financial reports assets and lease liabilities ranging from $3.6 billion to $3.8 billion for our operating leases where Telstra Group is a lessee. This estimate includes more than 80.5 billion related to lease payments arising from new legal contracts executed before 30 June 2019 but effective after that date, which have been treated as lease modifications for accounting purposes (refer to Table Bin note 7.4.2 to the financial statements for maturity profile of ouroperating lease commitments). The right-of-use assets will also be adjusted to reflect any prepaid and/or accrued lease payments. No adjustments have been identified for our finance leases where Telatra Group is a lessee. EY fees for the audit and review of the General reserve 201 201 9.073 9.011 9,732 Retained profits Total equity 9,700 Assurance services 14,150 14,112 Audit-related 2.120 1,455 0.481 1.936 Other assurance 1.465 Table B Telstra Entity Total assurance services provided by EY 3.585 Year ended 30 June 2019 2018 Non-audit services Tax services 0.070 0.065 Restated Advisory services Total non-audit services provided by EY 0.067 0.050 $m Sm (c) Other 0.137 0.115 Statement of comprehensive income Profit for the year Total comprehensive income In addition to the above matters, entities in the Telstra Group may be recipients of, or defendants in, certain claims, regulatory or legal proceedings and/or complaints made, commenced or threatened. At 30 June 2019, management believes that the resolution of these contingencies will not have a material effecton the financial position Where Telstra Group is an intermediate lessor we have reassessed 2,358 3,584 our operating leanes and identified those that on 1 July 2019 will be Audit-related fees charged by EY are for services that are reasonably recognised as finance leases. No significant adjustments have been related to the performance of the audit or review of our financial reporta and for other assurance engagements. These services include regulatory financial assurance services, services over debt raising prospectuses, additional control assessments, various accounting advice and additional audit services related to our 2,337 3.547 estimated. Total non-current assets include $603 million (2018: S862 million) impact of impairment losses recognised during the year. Within that of the Telstra Group, or are not at a stage which supports a amount, impairment losses relating to the value of our investments reasonablie evaluation of the likely outcome of the matter. in, and the amounts owed by. our controlled entities amounted to $104 million (2018: $545 million) and have been eliminated on consolidation of the Telstra Group. Refer to note 2.3 for impairment The accounting policien for the Telstra Entity are consistent with losses for property, plant and equipment and software. No adjustments have been identified for our operating or finance leases where Telstra is a lessor other than those related to intermediate lessor described above. controlled entities. 7.3.3 Recognition and measurement The transition estimates have been calculated based on our current Other assurance fees charged by EY are for other assurance interpretation of the new accounting requirements. However, there engagements, including IT security control assesaments. is still an ongoing global debate in regard to certain aspects of the application of the new standard and our final adjustments may differ We have processes in place to maintain the independence of the from the current estimates should a different consensus be agreed external auditor, including the nature of expenditure on non-audit globally. those of the Telstra Group, except for those noted below: * under our tax funding arrangements, amounts receivabie for payable) recognised by the Telstra Entity for the current tax payable (or receivablej assumed from our Australian wholly- owned entities are booked as current assets or liabilities • investments in controlled entitien, included within non-current assets, are recorded at cost less impairment of the investment value. Where we hedge the value of our investment in an overseas controlled entity, the hedge is accounted for in accordance with note 4.3. Refer to note 6.1 for details on our investments in controlled entities. • aur interests in associated entities and joint ventures, including partnerships, are accounted for uning the cost method of accounting and are included within non-current assets. 7.3.1 Property, plant and equipment commitments services. EY also has specific internal processes in place to ensure auditor independence. Table C provides details of our expenditure commitments for the acquisition of property, plant or equipment, which have been contracted for at balance date but not recognised in the financial statements. We continue to assess the impact of the new leasing standard on our future financial results, in particular how the new lease identification requirements will change accounting for new contracts entered into after 1 July 2019. We also continue to identify changes to our accounting policies, internal and external reporting requirements, IT nyntems, business processes and controls which will be fully operationalised during the financial year 2020. Table C As at 30 June 2019 Telstra Entity 2018 $m Sm Total property, plant and equipment expenditure commitments 471 635 7.1 Other accounting policies (continued) (b) Other 7.3 Parent entity disclosures 7.3.2 Contingent liabilities and guarantees In March 2018, the International Accounting Standards Board (the LASB) issued a revised Conceptual Framework for Financial Reporting ('Framework') to be used immediately by the IASB but effective for Telstra from 1 July 2020. We do not expect the practical When estimating the right-of-use asset and the lease liability as at 1 consequences of the new Framework to be significant in the short July 2019 for our transitioning operating leases where Telstra Group term. However, our assessment of the impact arising from the 7.1.3 New accounting standards to be applied in future reporting periods (continued) (a) Common law claims This note provides details of Telstra Entity financial performance and financial position as a standalone entity. The results include transactions with its controlled entities. Certain commonlawclaimsby employees and third parties areyetto be resolved. As at 30 June 2019, management believes that the resolution of these contingencies will not have a significant effect on the Telstra Entity's financial results. The maximum amount of these contingent liabilities cannot be reliably estimated. (a) New leasing standard (continued) is a lessee, we have used the following practical expedients for all similar leases on a consistent basis (as opposed to on a lease-by- lease basis as allowed by the standard): amendments is ongoing Tables Aand Bprovide a summaryof the financial information for the (b) Indemnities, performance guarantees and financial support Telstra Entity. We do not expect any other recently issued accounting standard or amendment to have a material impact on our financial results upon We have provided the following indemnities, performance guarantees and financial support through the Telstra Entity: • indemnities to financial institutions to support bank guarantees to the value of $229 million (2018: $189 million) in respect of the performance of contracts • indemnities to financial institutions and other third parties in respect af performance and other obligations of our controlled entities, with the maximum amount of our contingent liabilities of $135 million (2018: $133 million) • letters of comfort toindicate support for certain controlled entities to the amount necessary to enable those entities to meet their obligations as andwhen theyfall due, subject to certain conditions (including that the entity remains our controlled entity) during the financial year 1998, we resolved to provide IBM Global Services Australia Limited (BMGSA) with guarantees issued on a several basis up to $210 million as a shareholder of IIBMGSA. During the financial year 2000, we issued a guarantee of $68 million on behalf of IBMGSA. During the financial year 2004, we sold our shareholding in this entity. The $68 million guarantee, provided to support service contracts entered into by IBMGSA and third parties, was made with IBMGSA barikers or directiy to IBMGSA customers. As at 30 June 2019, this guarantee remains unchanged and $142 million (2018: $142 million) of the $210 million guarantee facility remains unused. Upon sale of our shareholding in IBMGSA and under the deed of indemnity between shareholders, our liability under these performance guarantees has been indemnified for all guarantees that were in place at the time of sale. Therefore, the overall net exposure to any loss associated with a claim has effectively been offset. • we have applied a single discount rate to portfolios of leases with adoption. characteristics which we have assessed to be reasonably similar • we have elected to rely on our assessment of whether leases are onerous under AASB 137 'Provisions, Contingent Liabilities and Contingent Assets' as at 30 June 2019 instead of conducting an impairment review • for leases of our personal computers and multifunctional devices, for which the underlying assets are of low value, we have not made any adjustments on transition and as a result the lease payments under these contracts will generally continue to be recognised on a straight-line basis over the lease term as other operating Table A Telstra Entity As at 30 June 2019 2018 7.2 Auditor's remuneration Restated Sm $m Our external auditor of the Group is Emst & Young (EY In addition to the audit and review of our financial reports, EY provides other services throughout the year. This note shows the total fees to external auditors split between audit, audit- related and non-audit services Statement of financial position Total current assets 6,959 7,053 Total non-current assets 38,194 38,215 Total assets 45,153 45,268 Total current liabilities 13,378 12,750 sosuedxe • we have no initial direct costs included in the measurement of the right-of-use assets at initial application of the standard • we have elected to utilise hindsight in determining the lease term for contracts that contain options for extension or termination of the lease. Total non-current liabilities 17,625 18,406 Telstra Group Year ended 30 June Total liabilities 31,003 31,156 2018 Sm 2019 Share capital Cash flow hedging reserve 4,447 (200) 4,428 $m (211) Audit fees Foreign currency basis spread reserve (21) (6) Based on our transition approach and the practical expedients used, the initial application of AASB 16 as at 1 July 2019 is expected to result in recording in the statement of financial position right-of-use financial reports assets and lease liabilities ranging from $3.6 billion to $3.8 billion for our operating leases where Telstra Group is a lessee. This estimate includes more than 80.5 billion related to lease payments arising from new legal contracts executed before 30 June 2019 but effective after that date, which have been treated as lease modifications for accounting purposes (refer to Table Bin note 7.4.2 to the financial statements for maturity profile of ouroperating lease commitments). The right-of-use assets will also be adjusted to reflect any prepaid and/or accrued lease payments. No adjustments have been identified for our finance leases where Telatra Group is a lessee. EY fees for the audit and review of the General reserve 201 201 9.073 9.011 9,732 Retained profits Total equity 9,700 Assurance services 14,150 14,112 Audit-related 2.120 1,455 0.481 1.936 Other assurance 1.465 Table B Telstra Entity Total assurance services provided by EY 3.585 Year ended 30 June 2019 2018 Non-audit services Tax services 0.070 0.065 Restated Advisory services Total non-audit services provided by EY 0.067 0.050 $m Sm (c) Other 0.137 0.115 Statement of comprehensive income Profit for the year Total comprehensive income In addition to the above matters, entities in the Telstra Group may be recipients of, or defendants in, certain claims, regulatory or legal proceedings and/or complaints made, commenced or threatened. At 30 June 2019, management believes that the resolution of these contingencies will not have a material effecton the financial position Where Telstra Group is an intermediate lessor we have reassessed 2,358 3,584 our operating leanes and identified those that on 1 July 2019 will be Audit-related fees charged by EY are for services that are reasonably recognised as finance leases. No significant adjustments have been related to the performance of the audit or review of our financial reporta and for other assurance engagements. These services include regulatory financial assurance services, services over debt raising prospectuses, additional control assessments, various accounting advice and additional audit services related to our 2,337 3.547 estimated. Total non-current assets include $603 million (2018: S862 million) impact of impairment losses recognised during the year. Within that of the Telstra Group, or are not at a stage which supports a amount, impairment losses relating to the value of our investments reasonablie evaluation of the likely outcome of the matter. in, and the amounts owed by. our controlled entities amounted to $104 million (2018: $545 million) and have been eliminated on consolidation of the Telstra Group. Refer to note 2.3 for impairment The accounting policien for the Telstra Entity are consistent with losses for property, plant and equipment and software. No adjustments have been identified for our operating or finance leases where Telstra is a lessor other than those related to intermediate lessor described above. controlled entities. 7.3.3 Recognition and measurement The transition estimates have been calculated based on our current Other assurance fees charged by EY are for other assurance interpretation of the new accounting requirements. However, there engagements, including IT security control assesaments. is still an ongoing global debate in regard to certain aspects of the application of the new standard and our final adjustments may differ We have processes in place to maintain the independence of the from the current estimates should a different consensus be agreed external auditor, including the nature of expenditure on non-audit globally. those of the Telstra Group, except for those noted below: * under our tax funding arrangements, amounts receivabie for payable) recognised by the Telstra Entity for the current tax payable (or receivablej assumed from our Australian wholly- owned entities are booked as current assets or liabilities • investments in controlled entitien, included within non-current assets, are recorded at cost less impairment of the investment value. Where we hedge the value of our investment in an overseas controlled entity, the hedge is accounted for in accordance with note 4.3. Refer to note 6.1 for details on our investments in controlled entities. • aur interests in associated entities and joint ventures, including partnerships, are accounted for uning the cost method of accounting and are included within non-current assets. 7.3.1 Property, plant and equipment commitments services. EY also has specific internal processes in place to ensure auditor independence. Table C provides details of our expenditure commitments for the acquisition of property, plant or equipment, which have been contracted for at balance date but not recognised in the financial statements. We continue to assess the impact of the new leasing standard on our future financial results, in particular how the new lease identification requirements will change accounting for new contracts entered into after 1 July 2019. We also continue to identify changes to our accounting policies, internal and external reporting requirements, IT nyntems, business processes and controls which will be fully operationalised during the financial year 2020. Table C As at 30 June 2019 Telstra Entity 2018 $m Sm Total property, plant and equipment expenditure commitments 471 635

Answer rating: 100% (QA)

Solution 1 Teslas financial statement on 01 July 2019 TESLA has applied AASB 16 and it has resulted ... View the full answer