Qantas Property, Plant & Equipment Disclosures

This assignment examines Qantas Airways' financial disclosures related to Property, Plant, and Equipment (PPE) as presented in their 2016 Annual Report. It analyzes the company's adherence to AASB 116 and AASB 13 standards, focusing on the relevance, understandability, and alignment of PPE information with the general purpose financial reporting objective. The analysis also suggests potential improvements to the company's accounting treatment of PPE.

Accounting Standards and Practice
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Executive Summary
The present report is developed for demonstrating the significance of developing the
financial statements according to conceptual accounting framework principles. In this
context, the analysis of financial reports disclosures of Qantas Airways has inferred that it
effectively satisfies the aims of general purpose financial reports. The Qantas Airways has
satisfied the requirements of conceptual accounting framework principles as stated by IASB.
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Contents
Introduction...........................................................................................................................................4
Objectives and the qualitative characteristics of useful financial information as per the Conceptual
Accounting Framework..........................................................................................................................4
Critical analysis of Qantas Airways annual reports to met the PPE related disclosures as per AASB 116
...............................................................................................................................................................5
Critical Analysis of Extent of Disclosures on PPE of Qantas Satisfying the Qualitative Characteristics of
Financial Reporting................................................................................................................................7
Extent of Aligning of the PPE Disclosures of Qantas with the Objective Financial Disclosures &
Recommendations.................................................................................................................................8
Conclusion.............................................................................................................................................9
References...........................................................................................................................................10
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Introduction
The present report is prepared in order to provide an understanding of the qualitative
characteristics of the financial information for making it useful for the end-users. The
financial reports developed by business corporations should meet the objectives of general
purpose financial reports as stated by the IASB (International Accounting Standards Board).
This report aims to present an understanding of the financial reporting disclosures and the
qualitative characteristics that financial information should possess. It is carried out through
evaluating the financial disclosures of an ASX listed firm, that is, Qantas Airways, a major
national carrier airline of Australia. The report has been developed on the basis of views of an
accounting graduate who has been assigned the responsibility of reviewing the qualitative
characteristics of financial reports of the company particularly in regard to Property, Plant
and Equipment.
Objectives and the qualitative characteristics of useful financial
information as per the Conceptual Accounting Framework
The objectives of general purpose financial reporting as stated as IASB can be stated
as follows:
 To disclose necessary financial information of a business entity to its present and
future users such as investors, lenders and creditors
 To support the decision-making process of present and future investors regarding their
purchasing, selling or holding the securities of the reporting entity through providing
them information regarding the present and future cash flows
 To provide an assessment regarding the use of an entity resources efficiently and
effectively by the management
 The general purpose financial reports must be directed to the primary users such as
investors, creditors and lenders
 The general purpose financial reports doesn’t provide all the necessary information to
the end-users and thus they need to gain the information obtained from other sources
such as economic environment, political sources and industry performance
 The financial reports developed by a reporting entity do not intend to provide the real
value of a firm but only provide estimate of its value
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 The reporting entities through their financial disclosure intends to satisfy the needs of
maximum of its primary users
 The management of business entities can also rely on the information obtained from
the internal financial reports besides external financial reports
 The financial information disclosed must be able to provide an analysis of its strength
and weakness through stating its economic resources and claims
 The business entities should use the accrual accounting for depicting the effects of
transactions on the economic resources in the period of their occurrence. This is to be
done even if the payments are made in future financial years.
The general objectives of the financial reporting have laid the foundation of development
of qualitative characteristics of conceptual accounting framework. The main fundamental
qualitative characteristics of financial information are relevance and faithful presentation as
stated by IASB in its conceptual accounting framework. The relevance principle states that
financial information in order to be useful for the end-users should be able to make a change
in their investment related decisions (Alexander, Britton and Jorissen, 2007). The faithful
depiction of financial information holds it to be complete in all aspects and should be free
from any biasness and error. In addition to this, there are enhancing qualitative characteristics
that a financial information should possess as per the principle of conceptual accounting
framework. These include comparability, understandability, verifiability and timeliness. As
per the comparability characteristics, the financial information disclosed must be able to
provide a comparative analysis of increase or decrease in the financial performance as
compared over the past years. The financial information must be presented in simple and easy
format as per the understandability principle. The verifiability characteristics state that
financial information should accurately present the economic phenomena it intends to
present. Timeliness means that financial information disclosed should not be old to influence
the decision-making process of users (Conceptual Framework, 2010).
Critical analysis of Qantas Airways annual reports to met the PPE
related disclosures as per AASB 116
The Australian Accounting Standards Board (AASB) has developed the AASB 116
standard in order to comply with the IASB standards for disclosures of property, plant and
equipment (PPE). The AASB 116 has incorporated the amendments done by IASB in its IAS
16 standard for measuring the value of PPE. The standard is developed with the objective of
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providing guidance to the business entities operating in Australia regarding the treatment of
property, plant and equipments. The standard provides the necessary information to the end-
users regarding the investment done by an entity in relation to PPE. The standard has
provided the guidelines relating to principal issues in accounting for PPE such as recognition
of assets, estimating their carrying amounts and the significant deprecation and loss arising
from impairment of assets. The annual report of Qantas Airways has disclosed that the airline
measure its items of property, plant and equipment on cost basis through deduction of
significant losses arising from deprecation and impairment (Compiled AASB Standard:
AASB 116, 2015).
The value of PPE is initially measured through historical cost basis and subsequently
recorded through the use of fair value accounting during preparation of consolidated financial
statements. The depreciation on the long-term assets of the company is calculated through
the use of straight-line basis with the exception of land that is not subject for depreciation.
The cost of acquired assets also includes cost of dismantling or restoring the site of location
of the assets. The company capitalizes the expenses related to the items of PPE in the income
statements only if it is estimated that the economic gains will be realized from the assets. The
depreciation is calculated on the assets from the date of their acquiring till the time it is
available for use (Qantas Annual Report 2016, 2016). The company have also disclosed the
asset depreciation periods of its principal assets and the predicted percentage of the residual
value illustrated as:
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Source:
https://www.qantas.com.au/infodetail/about/corporateGovernance/2016AnnualReport.pdf
Thus, it can be said that Qantas has effectively comply with the AASB 116 standard
requirements through providing all the required information in relation to its property, plant
and equipment.
Critical Analysis of Extent of Disclosures on PPE of Qantas Satisfying
the Qualitative Characteristics of Financial Reporting
The disclosures made by Qantas Airways in relation to PPE effectively comply with
the AASB 116 standard requirements. Thus, it can be said that the company financial
information in relation to PPE satisfy the qualitative characteristics of financial reporting.
The company in relation to relevance qualitative characteristics of conceptual accounting
framework incorporates the use of both historical and fair value accounting in estimating the
carrying value of items of PPE. The useful and residual values of the assets are reviewed
annually by the company in order to identify the impact of market fluctuations on the useful
and residual values of assets. This is done by the company so that existing and potential users
gain information regarding the value of property, plant and equipment as per the current
market situations (Qantas Annual Report 2016, 2016). In addition to this, the company in
accordance with the relevance principle has disclosed all the information regarding the
recognition and measurement, subsequent expenditure, depreciation and the cost incurred on
maintenance of assets. The financial information provided by the company in relation to
items of property, plant and equipment is also disclosed in a simple and easy format as per
the enhancing qualitative characteristic of understandability of conceptual accounting
framework (Albrecht, Stice, Stice and Swain, 2007). The notes to financial statements section
of the annual report of Qantas has sufficiently disclosed the financial procedures adopted for
measuring the long-term assets of property, plant and equipment . The use of fair value
method for measuring the items of PPE by the company are classified as held for sale under
the fair value hierarchy technique in the notes to accounts. The fair value less cost to sell for
individual assets of PPE is determined in reference to recent sale transaction as per the AASB
13 standard (AASB 13: Fair Value Measurement, 2013). The Qantas Airways notes to
accounts adequately satisfy the relevance and understandability qualitative characteristics of
conceptual accounting framework:
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Source:
https://www.qantas.com.au/infodetail/about/corporateGovernance/2016AnnualReport.pdf
Extent of Aligning of the PPE Disclosures of Qantas with the Objective
Financial Disclosures & Recommendations
The general purpose financial reports aims to meet the needs and expectations of its
maximum end-users related to investment decisions. The Qantas Airways through disclosing
the financial information related to measurement of its long-term assets of property, plant and
equipment as per the AASB 116 standard has met the objective of general purpose financial
reporting (Qantas Annual Report 2016, 2016). The company has disclosed complete and
relevant information through providing the accounting treatment for property, plant and
equipment. This is essential so financial statements users can develop an in-depth
understanding about the investment made in PPE. The information disclosed is required by
the end-users to make decisions regarding the holding, selling or buying the equity of the
company. However, the company is recommended to incorporate the use of double declining
deprecation method in comparison to straight-line basis for effective matching of its cost
items to expenses in the income statement (Warren, Reeve and Duchac, 2015).
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Conclusion
Thus, it can be stated from the overall analysis of annual disclosure made by Qantas
in relation to PPE that business corporations need meet the requirements of qualitative
characteristics of conceptual accounting framework. This helps them in turn to achieve the
general objective of developing financial reports.
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References
AASB 13. 2015. Fair Value Measurement. [Online]. Available at:
http://www.aasb.gov.au/admin/file/content105/c9/AASB13_08-15.pdf [Accessed on: 4
September 2017].
Albrecht, W., Stice, J., Stice, E and Swain, M. 2007. Accounting: Concepts and Applications.
Cengage Learning.
Alexander, D., Britton, A. and Jorissen, A. 2007. International Financial Reporting and
Analysis. Cengage Learning EMEA.
Compiled AASB Standard: AASB 116. 2015. Property, Plant and Equipment.
Conceptual Framework. 2010. The Conceptual Framework for Financial Reporting.
Qantas Annual Report 2016. 2016. [Online]. Available at:
https://www.qantas.com.au/infodetail/about/corporateGovernance/2016AnnualReport.pdf
[Accessed on: 4 September 2017].
Warren, C., Reeve, J. and Duchac, J. 2015. Accounting. Cengage Learning.
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