Nature of the Entity’s Business One.Tel was launched in Sydney, Australia in May 1995. They were...

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Nature of the Entity’s Business One.Tel was launched in Sydney, Australia in May 1995. They were described as a global telecommunications company offering a fully integrated product list including low-cost international and national calls, Internet services, prepaid and post paid calling cards plus GSM mobile phone services. Their strategies as customer-focused and dedicated to providing innovative, quality telecommunication services at reduced prices. Details of total revenue by geographic segment for the year ended 30 June 20001 are as follows: Country $M % Australia XXXXXXXXXXUK XXXXXXXXXXFrance XXXXXXXXXXNetherlands XXXXXXXXXXHong Kong XXXXXXXXXXOther XXXXXXXXXXTotal 678.2 The Industry Australia’s telecommunications infrastructure with a fully digitised network is as sophisticated and as modern as any in the world. Land based phone lines penetrate about 96 per cent of all households, with 2 million Internet subscribers and over 7 million Internet users. Mobile phone services are well established in Australia with more than 8 million users or 42 per cent of the population, one of the highest user rates in the world. Telstra, Optus and Vodafone each operate separate GSM mobile networks. Telstra’s market share is around 57 per cent, Optus 31 per cent and Vodafone 11 per cent. (Source: US Department of State FY2001 Country Commercial Guide) Prior to the deregulation of Australia’s telecommunications industry on 1 July 1997, there were two carriers. There are now 35 carriers who are often former service providers and are generally reliant upon leasing network capacity from Telstra, although some are developing their own switching and network capability. The influx of smaller carriers into the telephony market has acted as one of the major developments in producing important competitive results in the deregulated market. These carriers typically provide international and long-distance calls and, more recently, complete telephony services. The 1 Note 22 of Financial Statements for year ended 30 June 2000 for One.Tel Limited, ACN XXXXXXXXXX, and Controlled Entities, One.Tel web site. 3 growth in revenue does not correspond directly with growth in the number of telecommunication service providers due to greater market competition, reduced prices, and lower revenue per company. Telstra, the former monopoly carrier, is the dominant provider of Australia’s land-based telephony service. This network has nearly 10 million connections and an annual growth rate of five per cent. Telstra still dominates the telecommunications environment although its market share has dropped significantly in recent years. Mobile phone services are well established in Australia with more than 8 million users or 42 per cent of the population, one of the highest user rates in the world. Telstra, Optus and Vodafone each operate separate GSM mobile networks. Telstra’s market share is around 57 per cent, Optus 31 per cent, and Vodafone 11 per cent. Management The Board of One.Tel comprised nine members, including five non-executive directors and four executive directors. Due to the rapid growth of the industry described in the previous section significant managerial experience in the industry was limited. The functions of the board included: i. approval of corporate strategy, and financial plans; ii. identifying and addressing areas of significant risk facing the company; iii. reviewing and monitoring management processes and reporting mechanisms; iv. monitoring financial performance; v. appointment of the senior management team.2

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Question 1 
One.Tel is a telecommunication company. After liberalization, more competitors entered 
the market and increased the overall business risk. As there are more competitors in the industry, 
there is intensified competition for One.Tel and the business risk is higher for the company 
(AASB, 2009). It indicates the higher level of inherent risks in One.Tel. The factors that are 
contributing to the financial report level inherent risks are as follows: 
 Nature of business 
 Factors related to fraudulent financial reporting 
 Makeup of population 
 Misappropriate of assets  
A telecommunication business has more risk as the level of sustainability in this industry 
is difficult. Mostly all the main players have encountered a decrease in their market share. 
Similarly, this industry requires more investment in the new technology to provide better 
services that increase the inherent risk associated with a material misstatement. The financial 
reporting of the business is not as per the AASB (AASB, 2009). 
Financial report did not provide any valuable information indicating higher level of 
inherent where the company does not make a classification for all accounts. Income statement 
not prepared as per the accounting standards, the income statement begins with the earnings 
before depreciation, amortization, and abnormal items and income taxes. It does not provide any 
clarity about revenue generation that is there is no sales, cost of goods sold in income statement 
which is essential and primary information for the income statement. There is a combination of 
the income statement and retained earnings statement. There is no clarity in the income statement 
 3 
rather they are confusing indicating about higher chances of manipulation and fraud in preparing 
the financial report.  
Cash flow statements are not prepared as per the accounting standards; there is no 
indication about changes in working capital and their impact on cash flow statement. Instead of 
using the net income they made use of revenue and other costs that are part of the income 
statement in the cash flow statement (AASB, 2009). Improper disclosure of cash flow from 
operations accounts indicating that misstatements would be a systematic practice for the 
company. It indicates about their intentional fraud in disclosing the financial report.  
There is no appropriate classification of investing activities and financial activities. It 
indicates that there are deliberate misstatement and wrong preparation of the financial statement 
to boost the cash balance of the company. There is making up the population of the cash flow 
statement to justify the cash balance of the company. It indicates about the presence of higher 
level of inherent risks. The balance sheet of the company is inappropriate especially related to 
the classification of accounts. There is no appropriate classification of accounts in the balance 
sheet.  
Same accounts appear in current asset and non-current assets, current liabilities and non-
current liabilities.  Convertible notes categorized as equity is a mistake. All these errors indicate 
that the management is making all these misstatements deliberately. There is consolidated 
statement presented, and segment reports should be separate. Instead of reporting segment report 
there is parent company report that is indicating that all the activities of the company are 
intentional and there is related to fraudulent financial reporting.
 4 
Strategic business risk assessment is an important factor to measure the inherent risks. 
There is poor risk control management in the company. Every activity of the company is done 
only by the board, and there is no proper organization structure to govern them. It indicates about 
the presence of weakness in the management of the company (Amazon AWS, n.d.). A company 
operating in such competitive industry is not having a separate risk management department 
indicating that their quality of business risk management is poor.

Nature of the Entity’s Business One.Tel was launched in Sydney, Australia in May 1995. They were described as a global telecommunications company offering a fully integrated product list including...

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