Airline Financial Analysis and Accounting Standards

This assignment requires a financial analysis of both Qantas Airways and Virgin Australia Airlines. Students must assess their compliance with Australian Accounting Standards (AASB) and the Corporations Act 2001. The report should highlight key financial indicators, such as revenue growth, operating margins, and expenditure management. Additionally, students need to analyze the rationale behind potential investment in these airlines based on their financial performance and future prospects.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary Issues in Accounting
Name of Student:
Name of University:
Author’s Note:

1CONTEMPORARY ISSUES IN ACCOUNTING
Executive Summary
The report is intended to check the compliance of the financial report with the prescribed
standard. The various aspects of the study have been further able to state about the introduction
of prudence to address the disparity in the report. The latter section of the report has shown
rational for shareholders to invest in the companies. The findings of the report have revealed that
that the accounting standard of both the company is in compliance with AASB and Corporations
Act 2001. In addition to this, the standard is based on historical cost evaluation, except for fair
value assessment of asset and liabilities. The revenue recognition of the companies has been
further seen to be based on “AASB 118 Revenue”, “AASB 111 Construction Contracts and
Interpretation 13 Customer Loyalty Programmes”. The main consideration for delay in the
adoption of the new accounting standards has been seen to the main consideration for the
adoption of prudence. The main rational for the investors to invest is due to the increasing
revenue and operating margin for both Qantas Airways and Virgin Australia Airlines.

2CONTEMPORARY ISSUES IN ACCOUNTING
Table of Contents
Introduction......................................................................................................................................3
Conceptual framework of Accounting for both the companies.......................................................3
Prudence theory applied in both the companies..............................................................................4
Criteria followed for financial data..................................................................................................4
Rationale for the shareholders investing in the companies.............................................................5
Conclusion.......................................................................................................................................6
List of Appendix..............................................................................................................................7
References......................................................................................................................................13

3CONTEMPORARY ISSUES IN ACCOUNTING
Introduction
Jet Star runs under the brand name of Qantas Airways and recognised for being the low
cost airline operator from Australia (Qantas.com. 2017). Virgin Australia is discerned as the
second largest airline operator after Qantas Airways operating in Bowen Hills in Brisbane
(Virginatlantic.com. 2017).
The study is indented to check the compliance of the financial report with the prescribed
standard. The various aspects of the study have been further able to state about the introduction
of prudence to address the disparity in the report. The latter section of the report has shown
rational for shareholders to invest in the companies.
Conceptual framework of Accounting for both the companies
The analysis of the financial statement has revealed that the accounting standard of both
the company is in compliance with AASB and Corporations Act 2001. In addition to this, the
standard is based on historical cost evaluation, except for fair value assessment of asset and
liabilities. The revenue recognition of the companies has been further seen to be based on
“AASB 118 Revenue”, “AASB 111 Construction Contracts and Interpretation 13 Customer
Loyalty Programmes”. Despite of the adherence to the aforementioned standard, both the
companies is yet to adopt the new standard “AASB 15 Revenue from contracts with the
customers” on or after 1st January 2018. Both the companies has been further seen to be
determine whether there is a possibility of replacing the prevailing standard of “AASB 117 for
leases” and revise the framework based on AASB 16. Jet Star and Virgin Airlines has further

4CONTEMPORARY ISSUES IN ACCOUNTING
recognised the impairment of assets and the various types of financial guarantees based on
AASB 137 Provisions, Contingent Liabilities and Contingent Assets”(Rossing 2013).
Prudence theory applied in both the companies
The main rationale for following the prudence theory is evident with non-overestimation
of the revenues. This has been further evident with the non under estimation of the liabilities.
The financial statements have been considered as per the probable transactions. The main
consideration for the prudence has been further seen to be taken into account based on the on
taking any probable transactions. The main implementation of this has been evident with “AASB
15 Revenue from Contracts with Customers (AASB 15)” and “AASB 16 Leases (AASB 16)”
and it has been also sure about the replacement of the existing standards (Pernica and Hanušová
2015).
The assessment of the viability of the method has been further taken into consideration
based on effective date of the implementation of the standards for “AASB 15 Revenue from
Contracts with Customers (AASB 15)” and “AASB 16 Leases (AASB 16)”. The company is yet
decide on the recognition of new standards for leases and then only adopt aforementioned
standard on or after 1 January 2019. The various types of the consideration of the assets has been
considered for the regular review of the assets and to know the various types of the reasons for
declining the values for the same. Another important prudence aspect has been considered based
on not writing off the values associated to fixed assets (Barker 2015).

5CONTEMPORARY ISSUES IN ACCOUNTING
Criteria followed for financial data
Total Assets- It has been discerned that the total asset of Qantas Airways is $ 17708 m in 2016,
whereas the total asset of Virgin Australia is $ 6886.9 m in 2016. The net benefits of the airlines
have been seen to be based on “fair value of plan assets less the present value”(Ebert and Wiesen
2014).
Tangible Assets and Intangible Assets- The tangible assets are based on the revenue
recognition of various types of non-current tangible assets. The various types of intangible assets
are seen to be considered for impairment losses less cost (Rossing 2013).
Depreciation – Both Qantas Group and Virgin Airlines have been seen to recognize the
depreciation as per straight line basis for PPE except for freehold land. The depreciation rates on
the assets are taken into account as per total valuation cost and residual values of the estimated
useful life of the assets (Bauer, O’Brien and Saeed 2014).
Rationale for the shareholders investing in the companies
The rationale of the consideration of the shareholders investing in the company has been
evaluated based on director’s statement. The data co9nsidered from the annual report of Virgin
Airlines has been able to state on the on the increase in the revenue from $4,749.2 million to
$5,021.0 million. It has been further discerned that the total equity of 60% has been considered
based on the data gathered on 16 October 2014. It has been further discerned that the investors
should focus on the increasing net operating expenditure from $4,802.7 million to $5,278.7
million, as this has been recognised as the only negative side of the company. The various types
of the positive aspects have been conducive for the investors to invest in Virgin Airlines (Dobre
2013).

6CONTEMPORARY ISSUES IN ACCOUNTING
Based on the various implications from the CEO’s statement stated in the annual report of
2016, Qantas Airways has been able to contribute significantly with high financials from 2015-
16. It has been seen that the total increase in the financial performance has been seen to be
evident with the increase of the operating margin. This has been evident with the soaring high
figures for the EBIT recognised for Jetstar Group, Qantas Loyalty, Qantas International and
Qantas Domestic. The investors should particularly consider the main aspect of increasing profit
before tax from $ 975 m in 2015 to $ 1532 in 2016. Based on the financial analysis it has been it
has been further discerned that the operating expenditure are kept at a low level which is a
positive sign for the company (Lipka 2013).
Conclusion
The report has shown how the main accounting standard of both the company is seen in
compliance with AASB and Corporations Act 2001. The delay in the adoption of the new
accounting standards has been seen to the main consideration for the adoption of prudence. The
main rational for the investors to invest is due to the increasing revenue and operating margin for
both Qantas Airways and Virgin Australia Airlines.

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List of Appendix
Virgin Australia Group

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9CONTEMPORARY ISSUES IN ACCOUNTING
Qantas Airways

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References
Barker, R. (2015) ‘Conservatism, prudence and the IASB’s conceptual framework’, Accounting
and Business Research, 45(4, SI), pp. 514–538. doi: 10.1080/00014788.2015.1031983.
Bauer, A. M., O’Brien, P. C. and Saeed, U. (2014) ‘Reliability Makes Accounting Relevant: A
Comment on the IASB Conceptual Framework Project’, Accounting in Europe, 11(2), pp. 211–
217. doi: 10.1080/17449480.2014.967789.
Dobre, E. (2013) ‘ScienceDirect Banking Accounting Between Prudence and Flexibility’,
Procedia Economics and Finance, 6(13), pp. 621–626. doi: 10.1016/S2212-5671(13)00181-0.
Ebert, S. and Wiesen, D. (2014) ‘Joint measurement of risk aversion, prudence, and temperance’,
Journal of Risk and Uncertainty, 48(3), pp. 231–252. doi: 10.1007/s11166-014-9193-0.
Lipka, D. (2013) ‘The max U approach: Prudence only, or not even prudence? A Smithian
perspective’, Econ Journal Watch, 10(1), pp. 2–14.
Pernica, M. and Hanušová, H. (2015) ‘Certain Aspects of the Use of Accounting Principles in
the Accounting of Public Corporations’, Procedia - Social and Behavioral Sciences, 213, pp.
345–350. doi: 10.1016/j.sbspro.2015.11.549.
Rossing, J. P. (2013) ‘Prudence and Racial Humor: Troubling Epithets’, Critical Studies in
Media Communication, 31(4), pp. 1–15. doi: 10.1080/15295036.2013.864046.