The main aim of this report is the analysis as well as evaluation of the 2018 Annual Report of Vodafone Group Plc (VPG) with the aim to determine the fact that whether the financial statements of the company have been prepared and presented as per the standards and principles of Australian Accounting Standard Board (AASB). This report also considers the analysis of certain issues present in the financial statements of VPG for the year 2018 along with a brief description of the company.
VPG is a telecommunication company that involves in providing mobile and fixed broadband services to many countries all over the world along with Australia (vodafone.com.au 2018). In Australia, the 4G mobile network of VPG covers more than 22 million Australians. In Australia, Vodafone Hutchinson Australia is the result of 50:50 joint ventures between VPG and Hutchinson Telecommunications (Australia) (vodafone.com.au 2018). VPG has a customer base of almost 6 million as of 30 June 2018. The unique consumer and enterprise initiatives of VPG include no lock handset along with $5 Roaming plans for the mobile customers and 4G back-up along with Instant Connect for the fixed customers (vodafone.com.au 2018).
As per the new published in The Guardian on 30 August 2018, both Vodafone Australian and TPG Telecom have agreed on a merger for $15 billion with the aim to develop a new telecommunication company (theguardian.com 2018). The main aim behind this merger is to give serious competition to both Telstra and Optus for providing lower price products to the customers. It is expected that the new company, TPG Telecom Limited will be able in generating revenue of $6 billion annually. On the basis of this deal, it can be said that it will be profitable for the investors to invest in VPG for gaining higher return on investment.
It is needed for all the Australian companies to comply with the standards and regulations of AASB Conceptual Framework for the preparation and presentation of the financial statements. For this reason, they are needed to follow the requirements of measuring as well as recognizing the assets, liabilities, equity, income and expenses (Newberry 2015). According to the 2018 Annual Report of VPG, the company has prepared and presented their financial statements with accordance to the principles of International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board (IASB) (vodafone.com 2018). At the same time, VPG has complied with the principles of European Union Companies Act 2006. Thus, it can be observed that VPG has not followed the principles of AASB Conceptual Framework as they have complied with IFRS Conceptual Framework issued by IASB (vodafone.com 2018). The main reason for this is that the origin of VPG is Great Britain and this aspect has put the obligation on the company to comply with the principles of IFRS and IASB. In addition, it can be noticed from the 2018 Annual Report of VPG that the company has adopted fair value method for the measurement and recognition of their assets, liabilities, equity, income and expenses (ifrs.org 2018).
The fundamental qualitative characteristics are Relevance and Faithful Representation; and they are discussed below:
Relevance: Financial information is considered as relevant if they are able to make positive difference in the decision-making process of the users. For this, information needs to be both confirmatory as well as predictive value (Barth 2013). According to the 2018 Annual Report of VPG, the users can predict the future performance of the company from the provided financial information; and they can obtain the result of previous evaluation from them.
(Source: vodafone.com 2018)
It can be seen from the above image that the company has provided detailed information about their revenues and profits that helps the users in predicting the future performance (vodafone.com 2018).
Faithful Representation: Financial information must faithfully represent what it purports to present; and they need to be neutral, complete and free from errors (Tayeh, Al-Jarrah and Tarhini 2015). It can be seen from the 2018 Annual Report of VPG that the company has provided complete natural description as well as numerical description of their different financial substances like assets and liabilities that helps the users in determining the financial position of the company. The following example is provided for this purpose.
(Source: vodafone.com 2018)
The company has provided both the natural and numerical description of the property, plant and equipment of their business (vodafone.com 2018).
The enhancing qualitative characteristics are Comparability, Verifiability, Timeliness and Understandability; and they are discussed below:
Comparability: Relevant financial information is most useful when they can be compared with the similar information reported by other companies and the same company in other period (Wang 2014). As per the 2018 Annual Report of VPG, the financial information of the company can be compared with Telstra, another telecommunication company. The example is shown below:
(Source: vodafone.com 2018 and Telstra.com.au 2018)
It can be seen from the above that statement of financial position of both VPG and Telstra can be compared side by side. At the same time, it can be said from the comparison that Telstra has complied with AASB and Corporations Act 2001 where VPG has complied with IFRS and European Union Corporations Act 2006 (vodafone.com 2018).
Verifiability: The users of the financial statements must be able in verifying the accounting methods used by the companies with their knowledge and independent observations (Henderson et al. 2015). As per the 2018 Annual Report of VPG, the users can verify the used accounting methods by verifying the accounting information from notes to the financial statements (vodafone.com 2018).
Timeliness: Business organizations must make their financial information timely available to the users without any delay so that they can be helpful in financial decision making process (Francis, Hasan and Wu 2013). In case of VPG, the company provides their financial information on timely manner through quarterly, half-yearly and annual financial statements (vodafone.com 2018).
Understandability: Understandability helps the users in comprehending the obtained financial information for making them relevant; and thus, information must be presented clear and concise manner (Francis, Pinnuck and Watanabe 2013). As per the 2018 Annual Report of VPG, the company has provided required justification, clarification and assumptions in the notes to the financial statements so that udders can easily comprehend them (vodafone.com 2018).
There are certain issues in the 2018 Annual Report of VPG; and they are discussed below in details:
The presence of an inherent risk can be seen in revenue recognition process of VPG due to the complexity of the whole system along with the impact of the changing price model for the recognition of revenue. It can be seen that VPG has adopted the new revenue recognition standard that is IFRS 15 and it will impact the company as there will be an increase in the retained earnings of the company by €2.1 billion to €2.8 billion (vodafone.com 2018).
As per the 2018 Annual Report of VPG, the company has goodwill worth €26.7 billion that is contained within 20 cash generating units (CGUs). The company has recognized the impairment charges to goodwill in prior period. However, issue can be seen in Vodafone India as the group treats them as held for sale along with discontinued operation at the date of balance sheet. The company has determined its recoverable value on the lower of carrying amount and fair value less cost of disposal basis. This particular method has contributed to an impairment charge of €3.2 billion in 31 March 2018 that is a huge expense for the company (vodafone.com 2018).
According to the 2018 Annual Report of VPG, there is an issue in the company related to legal claim for withholding tax on the acquirement of Hutchinson Essar Limited along with the recognition as well as recovery of deferred tax assets in India, Spain, Germany and Luxembourg. The presence of major uncertainties can be seen in the resolution of these taxation cases and it is creating major issue for the company. For this reason, VPG has to concede deferred tax losses amounted €21.3 billion, €2.8 billion and €0.9 billion in Luxembourg, Germany and Spain respectively along with €1.6 billion related to the deferred tax in India (vodafone.com 2018).
VPG has been facing major issues as management judgment impacts the carrying value of property, plant and equipment and software intangible assets along with their depreciation profiles. These aspects include capitalization decision, review of annual asset lives, timeliness of transfer and others (vodafone.com 2018).
Conclusion
The above discussion indicates towards the fact that VPG has not followed the principles and standards of AASB Conceptual Framework due to the fact that the company has adhered to the Conceptual Framework of IFRS issued by IASB. As per the discussion, the company has complied with both the fundamental as well as enhancing qualitative characteristics in their financial reporting. After that, the report also shows the presence of certain issues in the 2018 Annual Report of the company; these issues are related to goodwill valuation, revenue recognition, asset capitalization and taxation. Thus, it is needed for the company to take into consideration these issues for increasing the future financial prospect of the company.
References
Barth, M.E., 2013. Measurement in financial reporting: The need for concepts. Accounting Horizons, 28(2), pp.331-352.
Farrer, M. 2018. Vodafone Australia and TPG announce $15bn merger. [online] the Guardian. Available at: https://www.theguardian.com/business/2018/aug/30/vodafone-australia-and-tpg-announce-15bn-merger [Accessed 21 Dec. 2018].
Francis, B., Hasan, I. and Wu, Q., 2013. The benefits of conservative accounting to shareholders: Evidence from the financial crisis. Accounting Horizons, 27(2), pp.319-346.
Francis, J.R., Pinnuck, M.L. and Watanabe, O., 2013. Auditor style and financial statement comparability. The Accounting Review, 89(2), pp.605-633.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Ifrs.org. (2018). [online] Available at: https://www.ifrs.org/-/media/project/conceptual-framework/fact-sheet-project-summary-and-feedback-statement/conceptual-framework-project-summary.pdf [Accessed 21 Dec. 2018].
Newberry, S., 2015. Public sector accounting: shifting concepts of accountability. Public Money & Management, 35(5), pp.371-376.
Tayeh, M., Al-Jarrah, I.M. and Tarhini, A., 2015. Accounting vs. market-based measures of firm performance related to information technology investments. International Review of Social Sciences and Humanities, 9(1), pp.129-145.
Telstra.com.au. (2018). Telstra – Annual reports – Investors. [online] Available at: https://www.telstra.com.au/aboutus/investors/financial-information/reports [Accessed 21 Dec. 2018].
Vodafone Australia. 2018. Information about Vodafone.. [online] Available at: https://www.vodafone.com.au/about/company [Accessed 21 Dec. 2018].
Vodafone.com., 2018. Annual Report 2018. [online] Available at: https://www.vodafone.com/content/annualreport/annual_report18/downloads/Vodafone-full-annual-report-2018.pdf [Accessed 21 Dec. 2018].
Wang, C., 2014. Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer. Journal of Accounting Research, 52(4), pp.955-992.
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