Financial Analysis of Qantas Airways: Business Accounting Report

This report presents a comprehensive financial analysis of Qantas Airways, focusing on the identification and composition of its income streams, primarily from passenger and freight services, as detailed in its 2019 annual report. It explores the company's revenue recognition practices under AASB 13 and IFRS 13, emphasizing fair value measurement. The report also highlights the importance of Generally Accepted Accounting Principles (GAAP) in ensuring comparability, consistency, relevance, and reliability in financial reporting. Furthermore, it examines the specific GAAP standards implemented by Qantas, such as the accrual basis method, and contrasts them with instances where GAAP principles are not fully adopted, such as the omission of a comprehensive income statement. The analysis considers the impact of these accounting practices on stakeholders, particularly investors, and the overall financial health of the company, referencing the Qantas Annual Report 2019 for specific data points and examples.

Running head: FINANCIAL ANALYSIS OF QANTAS AIRWAYS
BUSINESS ACCOUNTING OF QANTAS AIRWAYS
Name of Student
Name of University
Author’s Note

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FINANCIAL ANALYSIS OF QANTAS AIRWAYS
INTRODUCTION:
The main purpose of this paper is to analyses the composition of income of Qantas
Airways. The paper will also identify the income of Qantas Airways. The paper also shades light
on the importance of GAAP and similar kind of standard boards on Qantas Airways. The
implementation of AASB and IFRS in the financial statement of Qantas Airways has also been
discussed in this paper. To identify the income and its composition in Qantas Airways, the
annual report of 2019 of Qantas Airways has been considered. The impact of AASB and IFRS in
the financial statements of the company from the investor’s perspective has also been discussed.
1. IDENTIFICATION AND COMPOSITION OF INCOME OF QANTAS
AIRWAYS:
As per the annual report of 2019 of Qantas Airways, the main income source of the
company is the passenger and freight. After the analysis of the income statement of Qantas
Airways, it can be determined that the main passenger base of the company is from Australia and
rest is from overseas. The company earns around AUS $11,897 million from Australia and AUS
$4,770 million from overseas passenger. The total income that the company acquired from
passenger and freight is AUS $16,667 million in 2019, which is considerably much higher than
its previous year where the total income from passenger and freight stands at AUS $15,839
million. The annual report of the company also shows that Qantas Airways had acquired income
from other sources (Investor.qantas.com 2020). The company acquired AUS $1,299 in 2019. The
company considers and recognizes the revenue after the service is provided but it becomes
deferred on the balance sheet as the revenue received in advance. The company considered
Frequent Flyer marketing revenue and other loyalty business, store and redemption revenue,

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third part services revenue and other income under the head of other revenue and income. As per
the analysis of the income statement of 2019 of Qantas Airways it can be determined that
frequent flyer marketing revenue and other loyalty business of the company stands at AUS $441
million, which is higher in comparison to previous year where the value stands at AUS $405
million. The company also acquired income from store and other redemption revenue stands at
AUS $149 million in 2019. The company also acquired third party services revenue of AUS
$340 million in 2019. The other income part of the company stands at AUS $369 million
(Iatridis 2014).
The company also acquired some revenue from the interest income on the financial assets
and unwind discount on receivables. The total financial income of the company in 2019 stands at

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AUS $48 million, among which the AUS $42 million fetched from interests income on the
financial assets and AUS $5 million from unwind discount on receivables (Investor.qantas.com
2020).
RECOGNITION AND MEASUREMENT OF INCOME:
Qantas Airways recognizes revenue based on AASB 13 and IFRS 13. Both the standards indicate
about the Fair Value measurement that the company needs to incorporate while measuring the
revenue and income of the company within a period of time. The presence of the measurement of
the income can also be found in section 334 of Corporation Act 2001. As per the standard the
fair value of the company can be stated as the market-based measurement. The definition of fair
value can defined as the price that the company gains after selling any asset or paid by the
company to transfer a liability in a chronological manner. The company also follows historical
cost measurement while acquiring the asset from other company. The fair value measurement
concept assists the company to provide an accurate valuation and it also considered to be the best
measurement that is famous to assists the company to survive in the time of economic crunch.
The company also considers the historical cost while measuring the worth of assets and liabilities

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because the financial statements of the company shows original value of assets and liabilities of
the company and hence the company need not to show any kind of adjustments in the financial
statements. The fair value and historical cost found to be more effective in comparison to other
measurement of the assets and liabilities. Thus, the process becomes easy for the management,
investor and other stakeholders of the company to comprehend the financial statements of the
company.
2. GAAP:
Generally Accepted Accounting Principles (GAAP) is stated as the common set of
accounting principles, standards and the procedures that are issued by the country’s financial
accounting standard board. Generally Accepted Accounting Principles aims to improve the

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clarity, comparability and consistency of the financial information. The main advantages of
Generally Accepted Accounting Principles are that it brings unification in the world by unifying
the accounting process (WhatIs.com. 2020).
3. IMPORTANCE OF GAAP IN ANNUAL REPORTING:
The main goal of Generally Accepted Accounting Principle is that it assists the
company’s financial statements to be more accurate and consistent. Thus, making it easier for the
users of the financial statements to identify and analyze the financial health of the company
(Homsombat, Lei and Fu 2014). The importance of Generally Accepted Accounting Principle
can be narrowed down under the following heads:
Comparability:
Generally Accepted Accounting Principles increases the comparability of the financial
statements of the company by standardizing the accounting methods and presentation of the
financial statements of the company (WhatIs.com. 2020). The principles are developed in such a
manner that the company or any stakeholder can compare the financial health of different periods
of time. The main advantage of the comparability of the company is enjoyed by the investor of
the company. Business organization, on the other hand, can easily benchmark their performance
of the company based on the comparability factor of the financial statements of the company.
The comparability factor of Generally Accepted Accounting Principles can also be optimizing
based on their operations of the company.
Consistency:

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FINANCIAL ANALYSIS OF QANTAS AIRWAYS
As per the standard of Generally Accepted Accounting Principles, the business
organizations around the world need to follow the same accounting period. This standard
improvises the company to maintain the stability and consistency of the financial statements of
the business organization. The system involves from FIFO and LIFO method to the revenue
recognition method. This activity of Generally Accepted Accounting Principles assists the
company to influence the managers of the company to take internal decision making (Hung
2015). Generally Accepted Accounting Principles makes it easier for the stakeholders of the
business to evaluate the financial health of the company.
Relevance:
The financial health of the business organization greatly depends on the country’s
economic condition. Generally Accepted Accounting Principles assists the company and other
business institutions to recognize and records the business transactions in their respective
financial statements. Generally Accepted Accounting Principles basically narrows down the
information that the companies around the word are required to mention in their financial
statements (WhatIs.com. 2020).
Reliability:
Generally Accepted Accounting Principles assists the company to attest their respective
financial statements by the auditor of the company. This increases the viability of the financial
statements of the company and hence it becomes more reliable for the investors, owners and
even for the shareholders of the company. The business becomes more viable when the auditor
acknowledges the financial statements and passes the verdict over the authenticity of the
presentation of the financial statements in the annual report of the company. This principle also

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reduced the chances for the company to perform any fraudulent behaviour regarding the
misrepresentation of the financial statements in the annual report.
4. GAAP’s STANDARD USED BY QANTAS IN ITS ANNUAL REPORT:
Australia uses International Financial Reporting Standard in their accounting system.
International Financial Reporting Standard is the counterpart of Generally Accepted Accounting
Principles in Australia. Like Generally Accepted Accounting Principles, International Financial
Reporting Standard also assists the management of the company to manage the financial
reporting in the annual report and other auditing risks. The process of identification of audit risk
in International Financial Reporting Standard is similar to the Generally Accepted Accounting
Principles. The revenue recognition system for both the standard is same. IFRS 15 and ASC 606
are similar in kind, as both of them assist the company to recognize the revenue.
After analyzing the annual report of the company it can be determined that Qantas
Airways has followed some of the standard of Generally Accepted Accounting Principles in its
Annual report. As per the standards of Generally Accepted Accounting Principles, the companies
need to consider the accrual basis method while preparing the financial statements. Likewise,
Qantas Airways also considered the accrual basis method, while preparing the financial
statements of the company. Qantas Airways also prepared and showcase the balance sheet,
income statement and the cash flow statement in their annual report which is similar to the
standard of Generally Accepted Accounting Principles that states that the company needs to \
represent the incomes statement, balance sheet and cash flow statement in their annual report.

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FINANCIAL ANALYSIS OF QANTAS AIRWAYS
Qantas Airways also implemented AASB 15 that represents the recognition of revenue
from contracts with customers is similar to ASC 606. AASB 15 assists the company to recognize
the revenue from contracts with customer, which is the most integral part of the revenue of the
company, as the company is the part of the service industry. As per this standard the company
needs to represent the useful information in the financial statements of the company
(Investor.qantas.com 2020). AASB 15 also states about the nature, amount, timing and
uncertainty of the revenue in the financial statements of the company. This assists the company
to showcase their actual financial health for a certain accounting period of time.
The company also followed AASB 10 that assists the company to represent the
consolidated financial statements in their annual report of the company. AASB 10 is similar to
the GAAP standard that also insists the company to represent the financial statements in the
annual report. This assists the company to maintain the shareholder’s interests. This will not only
increase the valuation of the company but it will also increase the goodwill of the company in the
market. The increase in goodwill will assists the company to gain more funds from the markets
and it will also help the company to gain more customers (Yang and Baasandorj 2017).
Qantas Airways has used several accounting standards like AASB 15 and AASB 10 in
their annual report, which are not according to the standards of Generally Accepted Accounting
Principles. The use of AASB 15 and AASB 10 assists the company to gain the shareholder’s

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interests. From the investor point of view the company discloses the information about the
revenue recognition and other financial information in their annual report. The disclosing of
financial information in their annual report enables the company to earn the shareholder’s trust.
The shareholder’s trust will assists the company to gain more capital from the market, which will
ultimately increase the financial health of the company.
Qantas Airways has also used principle based accounting while preparing the financial
statements. The principle based accounting allows the shareholders of the company to have
different view point over single transaction. Generally Accepted Accounting Principles allowed
the company to prepare the accounting statement using rule based accounting method.
Thus, it can be determined that some standard of Generally Accepted Accounting
Principles have been implemented by the company while preparing their annual report.
5. GAAP PRINCIPLE THAT NOT USED BY QANTAS AIRWAYS:
After analyzing the annual report of 2019 of Qantas Airways it can be determined that the
company has not showcase comprehensive income statement in the annual report of the
company. Instead of comprehensive income statement the company has used consolidated
income statement in the annual report. As per generally Accepted Accounting Principles, the
companies need to provide comprehensive income statement in their annual report but Qantas
Airways used consolidated income statement in their annual report. The omission of
comprehensive income statement in the annual report by the company will compromise the
investor’s interests (Investor.qantas.com, pg-60 2020). The comprehensive income statement
insists the company to portray both standard income and other comprehensive income. Qantas
Airways has not segregated the income statement. This representation of income statement will

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compromise the shareholder’s interests. The consolidated income statement has a problem of
over capitalization. Thus, shareholders of the company do not get full idea about the adequate
return on their respective capital. On the other hand, comprehensive income statement does not
make over capitalization and thus, shareholders of the company can actually get full idea about
their return. The consolidated income statement of the company is not suitable for the companies
that have business in many countries, as it failed to cover all the expenses and income that the
company bears and gain in every business countries.

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CONCLUSION:
After analyzing the annual report of the company it can be determined that Qantas
Airways recognizes revenue using the fair value and historical cost measurement technique. It
can also be determined that the importance of Generally Accepted Accounting Principles in the
business is immense, as it drives the company to represent all the financial information in their
annual report. Qantas Airways also followed the standards of Australian Accounting Standard
Board and International Financial reporting Standard in their annual report to represent the
financial statements and the auditor’s report.

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