Analysis of Contemporary Accounting Issues for Airline Companies

This report provides a comprehensive analysis of the accounting frameworks employed by Qantas Airways and Virgin Australia. It examines their adherence to AASB and Corporations Act 2001, focusing on revenue recognition, asset valuation (tangible and intangible), and depreciation methods. The study highlights the companies' adoption of prudence in financial reporting, including the delayed implementation of new standards like AASB 15 and AASB 16. Furthermore, it explores the rationale behind shareholder investment in these airlines, emphasizing increasing revenue and operating margins. The report concludes by summarizing the key findings and implications of the accounting practices of both companies, offering a comparative perspective on their financial strategies and reporting methodologies.

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 has been able to infer the various types of conceptual framework of airline carrier
“Qantas Airways and Virgin Airlines”. The different depiction of the study has been further
included the aspect whether the financial report complied with the requirement based on the
prescribed standard. The prudence aspect has been further considered with the provision for
delaying the process in recognition of new accounting standards. The important findings of the
report has been further bale discern that the companies has considered conceptual framework
based on AASB and Corporations Act 2001. The investment suitability aspect is seen to be based
on increasing revenue and operating margin.

2CONTEMPORARY ISSUES IN ACCOUNTING
Table of Contents
Introduction......................................................................................................................................3
Conceptual framework of Accounting for both the companies.......................................................4
Criteria followed for financial data..................................................................................................5
Rationale for the shareholders investing in the companies.............................................................6
Conclusion.......................................................................................................................................7
List of Appendix..............................................................................................................................8
References......................................................................................................................................14

3CONTEMPORARY ISSUES IN ACCOUNTING
Introduction
The two brands “Jetstar” and “Qantas Airways” are identified as economic airline
operating in Australia. Jetstar alone is seen to be accountable for taking 8.5% of the passengers
in Australia. It has been further seen that they have been seen to be operational in the home
network and various types of other international routes operating from the Melbourne Airport
(Qantas.com. 2017).
Virgin Australia Airlines is seen to be placed after Qantas in terms of size. The airline
company has been further seen to be headquartered at Bowen Hills in Brisbane. The company
has been further seen to be set up in 1999 and functions in a single route. Since this time the the
organization has been able to expand itself across 29 cities (Virginatlantic.com. 2017).
The primary aim of the study has been seen to evaluate the existing framework for
accounting and evaluate whether it is able to comply with the requirement prescribed in financial
report of the company. The various implicatiosns of the study has been further bale to focus on
the different types of the other consideration which is seen to be based on prudence and various
considerations from intangible assets and tangible assets.

4CONTEMPORARY ISSUES IN ACCOUNTING
Conceptual framework of Accounting for both the companies
The conceptual framework for both the companies has been seen to be considered based
on AASB and Corporations Act 2001. It has been further discerned that the financial standings of
both the carriers has been further seen to address the varied types of the issue which has been
able to be based on historical cost evaluation except in areas pertaining to liabilities and assets,
which needs to be assed at fair value (Potter, Ravlic and Wright 2013).
The main form of the revenue recognition of the company is based on per “AASB 118
Revenue”, “AASB 111 Construction Contracts and Interpretation 13 Customer Loyalty
Programmes”. The company has intended to adopt the new standard of “AASB 15 Revenue
from contracts with the customers” in the published annual report on or after 1st January 2018. It
has been also seen that both the companies has been able to decide on replacing the existing
standard related to “AASB 117 for leases”, and formulate the revision process as per AASB 16.
The “AASB 136: Impairment of Assets” is considered based on the recognition of the
impairment of the assets and several other financial guarantees is framed as per “AASB 136:
Impairment of Assets” (Frestad and Beisland 2015).
In general the prudence implied as per the overestimation of the revenues. Jetstar and
Virgin Australia Airlines have been further seen to be applied based on the prudence concept
applied in the financial information. This has been further seen to be discerned as per
conservative nature of asset recording and not underestimating the liabilities. The consideration
financial statement has not taken into account the possible transaction (Andrew and Cortese
2013). Both the companies have seen to delay “AASB 15 Revenue from Contracts with
Customers (AASB 15)” and “AASB 16 Leases (AASB 16)” and it is not confident in replacing

5CONTEMPORARY ISSUES IN ACCOUNTING
the present standards. This has been further seen test viability of the method both the companies
with commencement on or after 1 January 2018. The company has been further seen to recognize
the leases on and after 1 January 2019. The various considerations made in the assessment have
been further able to state on the influence on the general review of the assets and assess the
reasons for declining values. In general, the most important concept of prudence has been based
on “writing off the values” related to the fixed assets (Schulzke, Berger-Walliser and Marchini
2013).
Criteria followed for financial data
Total Assets- The net assets of both the companies is assessed at “fair value of plant assets less
the present value”. The important consideration made in the report has been further able to show
that the financial statements of Virgin Australia has been able to hold the assets for the financial
leases which are seen to be based on the preparation of leases at fair value (Potter, Ravlic and
Wright 2013).
Tangible Assets and Intangible Assets- Qantas has been seen to consider the intangible and
tangible assets as per the “non-current tangible assets” which has been seen to be categorised
for the revenue generation activities. The various types of the considerations for the intangible
assets are taken into account with recoverable assets. The intangible assets are considered based
on impairment losses less cost. The different consideration for the determination of residual life
for the amortisation of the assets has been further seen to be considered as per remaining life and
of use life as on reporting date. The assets has not considered with the remaining and the of use
life on reporting date (Qantas.com.au. 2017).

6CONTEMPORARY ISSUES IN ACCOUNTING
Depreciation – Qantas Group has been considered the depreciation on straight line basis for the
PPE except freehold of land. The other considerations made in the depreciation rate have been
seen to be owned by the computation of the of use life of the assets. The depreciation rates on
these assets are charged as per the date of acquisition and useful life. The assets which are further
seen to be held as financial leases are considered as depreciation on the appropriate amount
(Schulzke, Berger-Walliser and Marchini 2013).
In a similar way the amortisation and the depreciation of the assets are considered from
the date when they are considered for saleable amount. The depreciation on the amount of PPE is
seen to be based on “accumulated depreciation and impairment losses”, less cost incurred. In a
similar way Virgin Airlines and Qantas Airways has been able to recognize the depreciation as
per the estimated value and straight line method (Navarro-García and Madrid-Guijarro 2014).
Rationale for the shareholders investing in the companies
The important highlight of the company has been seen to be based on stating the rationale
of investing in the company based on the director’s report. The report published by “Virgin
Airlines”, has been further able to show an increase from $ 4,749.2 million to $ 5,021.0 million.
The recognition of the financial information has been further able to discern that the company
has been able to reflect the total equity amount coming from 60% coming from “Tigerair
Australia” in 16 October 2014. The investors need to chiefly assess the increasing nature of the
net operating expenditure which has been increased from $4,802.7 million to $5,278.7 million
(Mohammed, Fahmi and Ahmad 2015).
Based on the CEO’s suggestions on Qantas published in the annual report in 2016 the
company has been able to contribute with the high figure in the financial year 2015-16. The

7CONTEMPORARY ISSUES IN ACCOUNTING
improved financial standing has been apparent with the increasing margin of operations which
has been recognised in terms of “EBIT” for Qantas Domestic, Qantas International “Jetstar
Group” and “Qantas Loyalty”. More than 2/3rd of the summed up earnings of the company is
based on the international operations and loyalty business (Teixeira 2014).
Conclusion
The main discussion of the report has given an augmented focus on the present
accounting framework of both the companies. The various evaluations have confirmed whether
the financial report has complied with the requirement as per the prescribed standard. The main
conceptual framework has been recognised with AASB and Corporations Act 2001. It has been
further discerned that the standards are issue by the international accounting board. Both Virgin
Australia Airlines and Jetstar have included prudence in their financial report. The rationale for
the investors has been further identified with the increasing revenue and operating margin for
both the airliners.

8CONTEMPORARY ISSUES IN ACCOUNTING
List of Appendix
Virgin Australia Group

9CONTEMPORARY ISSUES IN ACCOUNTING

10CONTEMPORARY ISSUES IN ACCOUNTING
Qantas Airways

11CONTEMPORARY ISSUES IN ACCOUNTING

12CONTEMPORARY ISSUES IN ACCOUNTING

13CONTEMPORARY ISSUES IN ACCOUNTING

14CONTEMPORARY ISSUES IN ACCOUNTING
References
Andrew, J. and Cortese, C. (2013) ‘Free market environmentalism and the neoliberal project:
The case of the Climate Disclosure Standards Board’, Critical Perspectives on Accounting,
24(6), pp. 397–409. doi: 10.1016/j.cpa.2013.05.010.
Frestad, D. and Beisland, L. A. (2015) ‘Hedge Effectiveness Testing as a Screening Mechanism
for Hedge Accounting: Does It Work?’, Journal of Accounting, Auditing & Finance, 30(1), pp.
35–56. doi: 10.1177/0148558X14549457.
Mohammed, N. F., Fahmi, F. M. and Ahmad, A. E. (2015) ‘The Influence of AAOIFI
Accounting Standards in Reporting Islamic Financial Institutions in Malaysia’, Procedia
Economics and Finance, 31(15), pp. 418–424. doi: 10.1016/S2212-5671(15)01216-2.
Navarro-García, J. C. and Madrid-Guijarro, A. (2014) ‘The Influence of Improvements in
Accounting Standards on Earnings Management: The Case of IFRS’, Australian Accounting
Review, 24(2), pp. 154–170. doi: 10.1111/auar.12020.
Potter, B., Ravlic, T. and Wright, S. (2013) ‘Developing Accounting Regulations that Reflect
Public Viewpoints: The Australian Solution to Differential Reporting’, Australian Accounting
Review, 23(1), pp. 18–28. doi: 10.1111/auar.12000.
Qantas.com.au. (2017). [online] Available at:
https://www.qantas.com.au/infodetail/about/corporateGovernance/2016AnnualReport.pdf
[Accessed 11 Aug. 2017].

15CONTEMPORARY ISSUES IN ACCOUNTING
Qantas.com. (2017). Our Company | Qantas. [online] Available at:
https://www.qantas.com/travel/airlines/company/global/en [Accessed 11 Aug. 2017].
Schulzke, K. S., Berger-Walliser, G. and Marchini, P. L. (2013) ‘Lexis nexus complexus:
comparative contract law and international accounting collide in the IASB-FASB revenue
recognition exposure draft’, Vanderbilt Journal of Transnational Law VO - 46, (2), p. 549. doi:
10.2139/ssrn.2139578.
Teixeira, A. (2014) ‘The International Accounting Standards Board and Evidence-Informed
Standard-Setting.’, Accounting in Europe, 11(1), pp. 5–12. doi: 10.1080/17449480.2014.900269.
Virginaustralia.com. (2017). [online] Available at:
https://www.virginaustralia.com/cs/groups/internetcontent/@wc/documents/webcontent/~edisp/
2016-asx-financial-report.pdf [Accessed 11 Aug. 2017].