Audit Risk Management Report: Qantas Airways (ACFI3005)

This report provides an analysis of the audit risk management of Qantas Airways, based on the 2019 annual report. It begins with an executive summary of the risks faced by the airline, including economic conditions, government regulations, and fuel volatility. The report is divided into two parts: Part A discusses the independent auditor's report, highlighting key audit matters such as revenue recognition and derivative financial instruments. Part B performs a business risk analysis, identifying entity-level risks like fuel and foreign exchange volatility, credit risk, and liquidity risk; industry-level risks like competitive intensity; and economy-level risks like foreign exchange risk, interest rate risk, and climate change. The analysis considers how these risks impact the auditor's risk assessment and provides insights into the financial position of Qantas Airways, emphasizing the importance of internal controls and risk management strategies.

Running head: AUDIT RISK MANAGEMENT
Qantas Annual Report
2019

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Executive Summary
The aeronautics business is dependent upon various intrinsic risks. These incorporates, yet are
not constrained to, presentation to changes in economic conditions, changes in government
guidelines, fuel and outside trade unpredictability and different exogenous occasions, for
example, flight occurrences, catastrophic events, war or a scourge. Qantas Group is presented to
various explicit business dangers which may affect the success of the Group's system and money
related possibilities. The Group's attention is on constantly improving the controls to deal with
these dangers as the setting of these dangers ordinarily doesn't altogether change contrasted and
the earlier year. The Qantas Group keeps on working in a residential and universal condition
where the political risk raised for the business will be typical. The expanded degree of
unconventionality makes it basic that the Group keeps on making provisions for extensive scopes
of situations and dangers to guarantee its heartiness.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Part A...............................................................................................................................................4
Part B...............................................................................................................................................5
Entity-Level Risk.............................................................................................................................5
Industry-level Risk...........................................................................................................................6
Economy-level Risk.........................................................................................................................7
Conclusion.......................................................................................................................................9
Reference.......................................................................................................................................10

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Introduction
This examination manages reviewing and confirmation in Australia. Qantas Airways
Limited is one of the Australian-recorded organizations working in aircraft industry in and
around the globe (Qantas.com. 2019). It is the biggest carrier organization as far as armada size
just as global goals and worldwide flights. Qantas Airways Limited possesses the third situation
in and around the globe. The primary inquiry requires recognizing the characteristic dangers
looked by Qantas Airways Limited in completing the review capacities (Soh and Martinov-
Bennie 2015). The primary target of Qantas Audit Committee includes helping Board for
satisfying corporate administration duties. It ought to be in arrangement with money related
revealing just as hazard the executives and review chance for future examination reason. It
requires the uprightness of activities for the organization Qantas Airways Limited money related
announcing in consistence with legitimate just as administrative commitments (Shaffner, Mills &
Helms, 2017).
Discussion
The aircraft business is among the world's least secure areas to work. All types of dangers
are confirming right now, most global aircraft organizations have been sharp towards the
administration of these industry related dangers. Aircraft segment entrepreneurs in Australia
have been depending on instruments and HR around them to effectively defeat dangers. The risk
that the Qantas Airlines Industry is facing is the risk of competitive intensity (Raynes & Tsui,
2019), risk of fuel and foreign exchange volatility, data governance and cyber security and
climate change. The aircraft industry is exposed to various risk which may impact the strategy
and financial prospects of the company.

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Part A
The audit report of the Qantas Airlines authorizes that the financial statements and notes
gives a true and fair view of the financial position of the Qantas Group, and the statement
complies with the Australian Accounting Standards and the Corporation Regulation 2001. The
Audit report also provides an opinion that there are reasonable grounds to believe that the Group
will be able to pay its debt as and when they became due and payable, along with obligation or
liability.
The Key Audit Matters (KAM) are the matters in the auditor’s professional judgement
which are of most important in the audit of the financial statement of the present period. The key
audit matters are chosen from matters that are communicated with those charged with
governance. The KAM that are identified is the Qantas Airlines are (Qantas.com, 2020):
 Frequent Flyer Revenue Recognition – It is considered as a KAM because of its high
level of audit effort and judgement.
 Derivative financial instrument accounting – It is considered as a KAM because of the
complication in the estimation of fair value of financial instrument and cash flow hedge
accounting.
 Passenger revenue recognition – It is considered as a KAM due to its financial
significance and audit efforts arising from a variety of ticket sales and high-volume
transaction.
The financial reports of other companies usually do not get an audit opinion that is based on
true and fair view and fails to comply with the Australian Accounting Board and Corporation
Regulation 2001. Sometimes it is also stated that the group or companies may not be able to meet
the financial obligation as and when they become due.

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Part B
Business Risk Analysis are the techniques used to ascertain and measure factors that
could hamper the success of the business or project. Risk analysis helps the organization to
assess the risk which the organization is facing and helps in initiating steps towards decision
making. The risk analysis of the Qantas Airlines are as follows:
Entity-Level Risk
The entity level assessment is to confirm the existence of the internal controls and to
ensure that the management instructions towards the entity are carried out. This risk assessment
involves identifying and analyzing the risk externally and internally. This specific inquiry
decides the innate hazard factors relating to Qantas Airways Limited. The consolidated part
clarifies the rendering activities embraced by review council on big business chance
administration and inner control system. The internal control needs improvement as per the
auditor. Such inherent risk includes risk of:
 Fuel and Foreign exchange volatility risk: Such risk arises due to the exposure of the
future AUD fuel to unfavorable USD i.e. conquered price movements and foreign
exchange movements (Mills, 2016). The supervisors of the future AUD fuel cost risk of
the Qantas Group utilizes alternatives and swaps on stream lamp oil, gasoil and unrefined
petroleum to support introduction to developments in the USD cost of aviation fuel.
Qantas believes the rough part to be an independently recognizable and quantifiable
segment of avionics fuel. The remote trade chance in the all-out fuel cost is
independently supported utilizing outside trade agreements and cash choices. The
assertion and ledger impact of the inherent risk will affect the management planning of
the Qantas Airways. Therefore, the audit procedure will be to inspect the current hedging

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contract of the Qantas Airways Limited. At the time of initial recognition, a possible risk
can be an inapt exchange rate used in the conversion of the amount, causing incorrect
expense, current liability and inventory valuation to be recorded, that can be over and
understated in value. Hence such risk shall be considered while assessing the exchange
and volatility risk.
 Credit Risk: The loss suffered from the operation in the event of nonpayment by the
counterparty during the term of the settlement of the transaction is known as credit risk.
The Qantas Group restricts its dealings to the parties who are sufficiently capable to pay
and has acceptable credit rating. The Group reduces the credit risk by undertaking
transaction with numerous customer and counterparties in accordance with the boards
approved policy (Yatsenko, 2017). Hence, while assessment of the audit risk significant
and unusual transaction needs to be verified with the counterparties by checking the same
transaction in the books of the counterpart.
 Liquidity Risk: It is the danger that an entity will face problems at the time of meeting
its obligation with respect to financial liabilities. The liquidity risk management of the
Qantas Group manages the risk by setting a base level of liquidity that will ensure long-
term assurances with respect to availability of cash flows, apart from preserving access to
additional sources for funding (Antonucci, 2016).
Industry-level Risk
These are the risk or critical issues faced by the industry such as the competition sustaining in
the market, the reputation of the goods and services, the involvement of the government through
the regulations and others factors which needs to be considered while assessing the risk of
company in a particular industry.

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 Competitive Intensity: Australia's liberal aeronautics strategy settings have pulled in
offshore contenders to the Australian universal flying business sector, prevalently state-
supported aircrafts. Qantas stays concentrated on building key aircraft organizations with
solid worldwide accomplices and streamlining its system. Qantas brings local quality and
the unmatched client proposing Qantas Loyalty. Qantas International keeps on building a
versatile and supportable business through change. The Australian domestic aviation
market is extremely competitive. Being profoundly serious, The Qantas Group's market-
driving local position and twofold brand methodology permit Qantas to viably ease the
effect of market changes. Qantas keeps on focusing on dealing with its cost base through
economical changing activities to assure it remains stern, while maintaining up a good
income. Jetstar is trying to keep up its least seat cost and gain benefit (Bamber, 2018).
Economy-level Risk
Economic risk is another reason due to which international investments bears more risk
than domestic investments. The holders of the share and bond often bear the economic risk
undertaken by international companies like Qantas Group’s. Investors who trade in foreign
government bonds are also bare to the risk.
Economic risk in some cases gives a chance to investors. Foreign bonds, for instance, permit
financial specialists to join in a roundabout way in the remote trade markets and interest rate
environment of different nations (Jorge-Calderón, 2016). Be that as it may, the foreign
administrative specialists may force various necessities on the sorts, sizes, timing, credit quality,
divulgences, and guaranteeing of bonds gave in their nations. The economy-level risk of the
Qantas Group are as follows:

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 Foreign exchange risk: This risk assumes that there will be a fluctuation in the fair value
of the future cash flows of assets and liabilities due to change in the foreign exchange
rates. Such risk originates from operations, capital expenditure and translation risk. The
foreign exchange risk contracts and currency options are used to hedge a share of net
foreign currency exposures in agreement with Qantas Group policy. A fair value is
designated to the non-derivative financial liabilities in hedge relationship, to hedge
foreign currency exposures within property, plant and equipment. Net foreign currency
exposures, including foreign currency purchases and disposals of property, plant and
equipment, may be hedged out to two years within specific parameters (Dafir & Gajjala,
2016). The management of this risk requires management of the forward foreign
exchange contracts, cross currency swaps, hedging and currency option.
 Interest rate risk: It refers to the risk in which the fair value or future cash flows of the
financial instrument will fluctuate due to change in the interest rate in the market (Hecht,
2018). The Qantas Group has exposure to changes in rates and financing costs emerging
from its arrangement of interest rates sensitive assets and liabilities, which are prevalently
in AUD and USD monetary forms. These essentially incorporate corporate debts, leases
and cash. Since the Group has exposure to the interest rate risk therefore audit risk
assessment will involve analysis of the cash flows which was affected to decrease or
increase in the interest rate.
 Climate change: The Qantas Group is liable to present short-term and long-haul
atmosphere related physical and change dangers. These dangers are an inherent part of
the tasks of an aircraft and are overseen by undertaking scenario analysis, fortifying
governance, technology, operational and advertise based controls, including proactive

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thought of how evolving factors (counting worldwide atmosphere arrangements) sway
the area of atmosphere related dangers (Lin, 2017). The Qantas Group is reacting to
expanded interest for straightforwardness on recognizable proof and the executives of
atmosphere related dangers by adjusting its 2018/19 corporate revelations with the
Taskforce on Taskforce on Climate-Related Financial Disclosures (TCFD). The audit risk
assessment would include analysis of the goods and services which actually destroyed
due to changes in the climatic condition.
Conclusion
The above report focuses on an independent audit report from the annual report, that
forecast on the business risk of the Qantas Airlines Industry. This risk assessment report covers
the risk relating to the entity, industry and economy level risk. The above business risk includes
various factors that are external and internal to the company. The report also highlights the key
audit matters of the Qantas Airlines and how the above business risk must be integrated as an
audit risk and how the risk factor has been assessed at the time of audit.

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Reference
(2020). Retrieved 16 March 2020, from
https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgy
w/file/annual-reports/2019-Annual-Report-ASX.pdf
Antonucci, D. (2016). Risk Maturity Models: How to assess risk management effectiveness.
Kogan Page Publishers.
Bamber, G. J. (2018). Low-cost airlines’ product and labor market strategic choices: Australian
perspectives. Members-only Library
Dafir, S. M., & Gajjala, V. N. (2016). Fuel Hedging and Risk Management: Strategies for
Airlines, Shippers and Other Consumers. John Wiley & Sons.
Hecht, A. (2018). Corporate Interest Rate Management‐Hedge or Speculation?. CARF Luzern
2018, 256.
Jorge-Calderón, D. (2016). Aviation investment: economic appraisal for airports, air traffic
management, airlines and aeronautics. Routledge.
Lin, W. (2017). Aviation and Climate Change: Practising Green Governmentality across the
North-South Divide. Geopolitics, 22(1), 129-150.
Mills, G. (2016). The Airline Revolution: Economic analysis of airline performance and public
policy. Routledge.
Raynes, C., & Tsui, K. W. H. (2019). Review of Airline-within-Airline strategy: Case studies of
the Singapore Airlines Group and Qantas Group. Case Studies on Transport Policy, 7(1),
150-165.

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Shaffner, E., Mills, A. J., & Helms Mills, J. (2017). Reading Qantas History: Discourses on
Intersectionality and the Early Years of Qantas. Insights and Reflections on the Study of
Gender and Intersectionality in the Cultures of Airlines Overtime, 445-469.
Williams, G. (2017). Airline competition: deregulation's mixed legacy. Taylor & Francis.