Telstra can deliver its results within six weeks of balance date. What lessons can other corporates learn from this process? 
 
Story Scott Canning 
 
As the regulatory bodies, boards and shareholders clamour for the reporting of full accounts earlier and earlier, one of Australia’s biggest companies, Telstra, may have come up with a solution. The telecommunications giant is offering to share its process with other major corporations. 
 
Telstra’s internal financial reporting processes allow the telco to report its full financial statements within six weeks of its 30 June balance date. This year the accounts will be ready on 13 August. The secret to the process is in the planning says David Anderson CA, director of Telstra’s corporate accounting and planning. 
 
“Basically we had to re-engineer the process some years ago when we were told that we had to bring forward our results by two weeks,” Anderson explains. “We used to report on the last Thursday of August, which was too close to the end of the reporting cycle. So with this challenge, we had to think ‘how are we going to do this?’.” Clearly they came up with the answer. 
 
Anderson has been in his current position for the past 18 months, so he was not involved in the original re-engineering project. However, he and his colleague Mark Ellul CA, finance manager (accounting policy) have been working to fine-tune the process and to make sure that Telstra’s internal reporting systems are maintained. 
 
Broader Application  
The broader application of Telstra’s early reporting system came to light following a meeting of the Institute’s Victorian Corporate Advisory Panel. The panel was investigating the way in which Australian corporations undertake their external financial reporting processes. 
 
At the same time, Telstra, which is a member of the panel, had been independently approached by a number of large companies for advice on speeding up the reporting cycle. 
 
As a result Telstra utilised an AIFRS discussion forum in Melbourne in November 2007 to provide insights into its external financial reporting process. 
 
It looked at systems and resources, planning work performed and timing, auditor engagement, senior management review, audit committee timing, technical issue resolution and materiality. 
 
The forum, attended by representatives of a number of major corporations including BHP Billiton, Fosters, Australia Post, Orica, Tabcorp and the National Australia Bank, resulted in several organisations moving to investigate the application of the Telstra approach. 
 
Both Anderson and Ellul modestly believe that the Telstra processes can be shared with other corporations looking to improve and streamline their reporting processes. 
 
The processes are recognised as arguably best practice in external reporting. Further illustration of best practice is Telstra’s AIFRS transition and more recently the early adoption of AASB7 Financial Instruments. 
 
Year-round Approach  
While the process is a year-round approach under the direction of the chief financial officer, John Stanhope, it is not until the second week of July when the year-end management results are finalised that Anderson, Ellul and their direct reports can begin with the final process of delivering the corporation’s set of final accounts. Anderson says things then start to get pretty hectic but by 13 August, Telstra will have the ASX documentation, directors’ report, the remunerationn report and a full set of accounts. 
 
It all comes down to the planning and co-operation between the corporate accounting team, business units and the early involvement of audit. 
 
“The fact is that we have a very good idea of the format of our accounts and the disclosures required (by the end of the financial year),” says Anderson. “Part of the reason for the smooth operation of the process is that there is a lot of work brought forward. But it’s all in the planning. We have people dedicated to the task – in my team, for instance, there are six or seven dedicated to financial reporting.” 
 
April 
Anderson’s external reporting operation starts in April with its processes for preparing its end-of-year report. At that stage Ellul explains that the set-up process begins, preparing the corporation to commence feeding through the data required. A review of the programs and the timetable is undertaken to ensure the systems are in place. 
 
Ellul says that this preparatory phase includes a rollover and technical review of the financial reporting documents as well as testing of the systems. 
 
“The majority of the numbers and financial tables that we disclose in our accounts are automatically populated from our ledger or other systems used. There is very little manual keying in of financial data,” says Ellul. 
 
All the business units, subsidiaries and joint ventures are provided with their reporting instructions. 
 
May 
“May is a critical period,” says Anderson. “We know what it is going to look like and we get the auditors working. We have a very detailed and long timetable which is broken down so we know exactly who is doing what.” Ellul goes on to explain that in May each year all the business units within Telstra are briefed on their reporting instructions and papers are prepared for the June audit committee meeting. There is a lot of negotiation and discussion between the various groups,” he says. “That is where the process really works.” 
 
This is followed by the distribution of all review and analysis (R&A) and system templates. The financial statements, including comparatives, are forwarded to the auditors with the relevant draft notes provided to human resources, legal, actuaries and the other functional business units for their review and comment. 
 
As the work increases in its intensity, Anderson and Ellul are supported by an immediate team of three staff responsible for the statutory reporting and another three staff who look after accounting policy and compliance. As well as the external reporting documents that are prepared, the team is also responsible for the preparation of balance sheet briefing notes for senior management and the co-ordination of the group management questionnaire sign-off. 
 
They are supported by the investment accounting group which has a staff of five who are tasked with the monthly consolidation and equity accounting. They are also responsible for the eliminations and equity reconciliations, impairment testing, deed of cross guarantee, acquisition and divestment disclosures and other disclosures from subsidiary companies, joint venture operations and associates. 
 
June 
Ellul says in June the work levels increase substantially. The month starts with a technical sign-off from the audit team for the financial statements prepared in May. Preliminary impairment testing is done on the May results (and updated in July) and finalisation of as much of the notes, 4E, directors’ report and the concise and briefing notes as is possible. The review and analysis is completed based on the 31 May management results and the commitments and related parties’ schedules are also finalised. Finally the May data is hard closed including an end-of-year review. 
 
“In addition, over the May and June period we undertake formal balance sheet reviews of each business unit to ensure we are able to identify and clear any accounting issues that arise by 30 June,” says Ellul. 
 
July 
As both Anderson and Ellul state the end of June and early July is a bit of a waiting game as the business units and subsidiaries finalise their results and our information requirements. But once these are submitted, it’s all systems go. Vital issues such as cash flow for the group and the entity are also completed along with a number of final adjustments dealing with audit queries. Tax journals and tax notes are completed in the fourth week of July in order to make the deadline. 
 
A range of other sign-off processes are also undertaken in late July, including the sending of the complete set of financial statements, directors’ report and various briefing notes, along with all associated papers to the results steering committee which is chaired by the CFO and comprises key financial management personnel and members of Telstra’s legal, investor relations and media relations teams. A few days later that information is then sent to the audit committee for consideration. 
 
August 
The timeline for August commences with both the audit committee and board of directors’ review of the accounts and other disclosures to enable the market release of the documents on 13 August. 
 
One of the key elements in the whole process is the auditor engagement process which Ellul describes as starting in April and May with the initial technical and disclosure review. That is followed by the hard close of the 11 months to 31 May and then the yearend work, ensuring technical accounting issues are resolved along the way. 
 
He says the auditors’ requirements are closely aligned to the Telstra accounting team’s timetable. Instructions and notes are provided to audit as soon as they are completed. 
 
The key to this relationship is that there are no surprises, with regular reporting of issues and/or changes by both corporate accounting and audit throughout the process. 
 
“The way we report, we aim not to have any variance from management and statutory reporting,” he says. “It is all aligned.” 
 
Interested Parties  
Anderson says Telstra had been asked to provide a tour of the process following the presentation to the forum group. He says there was definite interest from the other parties to emulate the process and therefore speed up their own reporting process. 
 
“After the presentation, we produced a document and took one corporate through,” he says. “They were going to talk to some of our external software providers to see if it could be done for them.” 
 
Of course the process would not be successful without the commitment of the wider Telstra team. 
 
Skills shortage 
Like all other professional groups, finance and accounting has suffered a critical skills and staff shortage making it very difficult to find people with the skills and more importantly the drive to undertake the corporate accounting process. 
 
Anderson says when he took over the corporate accounting unit at Telstra, there were six vacancies. 
 
“We went on a recruiting process that was finalised in March. There is definitely a lot of competition out there.” As a result there are a number of new people on the team who are having a baptism of fire. 
 
He says that the process, while working very well for Telstra, is a work in progress with a program of fine tuning constantly under way. 
 
Key elements such as the timing of the completion of cash flow and tax accounting could be improved to speed up the process. But as with all tax matters, it is a very complex process.