ACCG224: Financial Accounting and Reporting on Qantas Impairment

This report analyzes the financial reporting practices of Qantas Ltd, focusing on the application of professional judgment in impairment testing. It examines the impaired assets of the company, including trade receivables, land, buildings, and intangible assets, and the estimation processes used for write-downs. The report evaluates the disclosures made by Qantas Ltd regarding impairment testing, considering the guidelines provided by ASIC. The assessment highlights the importance of professional judgment in ensuring the quality and accuracy of financial reports and identifies areas where Qantas Ltd could improve its disclosures and assumptions, particularly in relation to cash flow estimations and the allocation of corporate assets to cash-generating units. The conclusion emphasizes the significance of detailed disclosures and adherence to accounting standards, particularly in the context of impairment testing, to provide a transparent and reliable view of a company's financial position.

Running head: ACCOUNTING AND FINANCIAL REPORTING
Accounting and Financial Reporting
Name of the Student:
Name of the University:
Author’s Note:

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Executive Summary
The main purpose of the assessment is to analyse the reporting framework of Qantas ltd which is
engaged in aviation industry. The analysis would be considering the impairment testing protocols
which is followed by the business and also show the different assets which are impaired by the
management of the company for the year 2018. It is also to be evaluated if the business has
followed ASIC guidelines while showing disclosures and other important aspect in the annual
reports of the business.
Table of Contents

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Introduction......................................................................................................................................3
Part a................................................................................................................................................3
Role of Professional Judgement in Accounting...............................................................................3
Implications of inappropriate professional judgement on accounting information.....................4
Part b................................................................................................................................................4
Impaired Assets of Qantas Ltd....................................................................................................4
Estimation required for writing impairment................................................................................4
Amount of Write off....................................................................................................................5
Relevant Disclosures of Impairment Testing..............................................................................6
Part c................................................................................................................................................6
Part d................................................................................................................................................7
Conclusion.......................................................................................................................................7
Reference.........................................................................................................................................9

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Introduction
The main purpose of the assessment is to analyse the business of Qantas Ltd which is
engaged in providing airlines services to the customers. The company is engaged in providing
aircraft services to the consumers. The financial reports provide important information to the
users regarding the financial health of organization (Investor.qantas.com. 2019). The assessment
would be focused on evaluating various aspects for testing of impairment charges of Qantas Ltd,
which can be considered as one of leading airline businesses operating in the country.
Part a
Role of Professional Judgement in Accounting
The concept of professional judgement involves accounting expertise and knowledge of
the same and it is to be noted that the same have significant importance in the field of
accounting. The quality of the financial reports which is prepared by a business is heavily
dependent on the accounting expertise and knowledge and also practical experience of the
accountant preparing the annual reports of a business (Linnenluecke et al. 2014). The only
concern which have affected the integrity of the accounting profession is the various scandals
which have taken place over the past years globally. This can be regarded as lack of ethical
conduct in the business and therefore hampering the reporting framework and reputation of the
accounting profession and the company. Professional judgement of an accountant can ensure that
proper ethical standard is maintained and thereby ensure that the quality of the financial reports
are appropriate and free from material misstatement.

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Implications of inappropriate professional judgement on accounting information
The implications which can be identified when professional judgement is inappropriate
on accounting information are listed below:
 The financial statement users are dependent on the annual reports for taking major
decisions of the company and therefore if professional judgement of the accountant is
inappropriate then a true estimate of financial health of the company cannot be
ascertained. This would misguide the users of financial statements (Rennekamp, Rupar
and Seybert 2014).
 An extension of the first implication is that if the users if the financial statements are
misguided then they would take wrong decisions and therefore likely reduce their overall
returns from investments.
Part b
Impaired Assets of Qantas Ltd
The annual report of Qantas ltd is considered for the year 2018 to identify some of the
impaired assets of the company. The impaired assets of the business include trade receivables,
land and building and some of the intangible assets of the company (Guthrie and Pang 2013).
The intangible assets of the business have an indefinite live and the management of the company
have appropriately shown impairment on the assets of the business.
Estimation required for writing impairment
In order to appropriately show the impairment on the assets of Qantas ltd, a number of
estimation for impairment write downs are considered. These estimations include cost of

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conducting business, growth in revenue, gross margin and discount rate. The estimation are
considered on the basis of experience and cash generating units of the business.
Amount of Write off
The impairment amounts which are shown to be written off is shown in the annual report
of Qantas ltd for the year 2018
The table which is shown above represents the impairments on trade receivables and
plant and machinery of the business. The accumulated impairment and depreciation amount on
plant and machinery is shown to be $ 14,683 million. The impairment losses on trade receivables
is shown to be $ 2 million.

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Relevant Disclosures of Impairment Testing
The impairment testing in the business of Qantas ltd is dependent on the judgement of the
management of Qantas ltd and also on the basis of the expected cash generating unit of the asset.
The cash flow which can generated from each of the assets is considered along with the discount
rate which would be applicable to a particular asset (Amiraslani, Iatridis and Pope 2013). The
impairment testing is conducted by the management of the company in accordance with the
requirements of AASB 36. In the similar manner the impairment testing of the intangible assets
is done.
Part c
As per the ASIC media release, the numerous factors which are associated with the
assumptions of cash flow comprise mainly of funding cost, previous cash flows and market and
economic conditions (Asic.gov.au 2019). The impairment testing process of Qantas ltd
effectively shows that the business has considered a growth rate but has not considered funding
costs or previous year cash flow. Hence, the management of the company needs to incorporate
all these aspects in cash flow assumption.
As per the ASIC, discounted cash flows need not be used for ascertaining fair value
minus disposal cost due to the lack of reliability as the same is based on assumptions and
forecast. A discount rate of 10% is considered by the management of Qantas ltd in order to get
reliable forecasts and assumptions (André, Dionysiou and Tsalavoutas 2018). In addition to this,
it is also to be noted that ASIC restricts the organisations in identifying CGUs at excessively
high levels in cases where the values of the assets are dependent. The management of Qantas ltd
has grouped the cash generating units of the business at lower levels where there is a distinct and
identifiable cash flow.

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It is also the requirement as per ASIC to allocate corporate assets and its costs to Cash
generating units where reasonableness can be identified. These judgements and assumptions are
not appropriately shown in the annual report of the business for the year 2018. Therefore, it can
be advised to the management of Qantas ltd to take all these factors into consideration. As per
ASIC, entities are required to use fair value in an effective manner to conduct exploration testing
(Abuaddous, Hanefah and Laili 2014). The management of the company has not provided
appropriate disclosures in this regard and therefore the same needs to be provided by the
management of the company.
Part d
The principles of general purpose financial reporting framework require entities to report
about their financial positions in an appropriate manner. The second crucial objective is to
appropriately is to reveal the financial performance of the business and the final objective is to
provide information relating to cash flow to the users of financial statement. The financial
reports which is shown for Qantas ltd is fairly represented with appropriate disclosures.
However, the management of Qantas ltd need to apply professional judgement in the business in
case of impairment testing. There are some requirements and disclosures missing in case of
impairment testing which needs to be included in the annual reports of the business.
Conclusion
The above discussion effectively shows that professional judgement is an very important
aspect for maintaining the quality of the financial reports of the business. The company which is
considered is Qantas ltd which has shown appropriate disclosures in the annual reports of the
business however, a more detailed disclosure needs to be provided in case of impairments of

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assets. The business also needs to take into account the disclosure requirements and other
formalities which are started by ASIC in its media release.

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Reference
Abuaddous, M., Hanefah, M.M. and Laili, N.H., 2014. Accounting standards, goodwill
impairment and earnings management in Malaysia. International Journal of Economics and
Finance, 6(12), p.201.
Amiraslani, H., Iatridis, G.E. and Pope, P.F., 2013. Accounting for asset impairment: a test for
IFRS compliance across Europe. Centre for Financial Analysis and Reporting Research
(CeFARR).
André, P., Dionysiou, D. and Tsalavoutas, I., 2018. Mandated disclosures under IAS 36
Impairment of Assets and IAS 38 Intangible Assets: value relevance and impact on analysts’
forecasts. Applied Economics, 50(7), pp.707-725.
Asic.gov.au., 2019. 18-159MR Major changes affecting reported net assets and profit, and other
focuses for 30 June 2018 reporting | ASIC - Australian Securities and Investments Commission.
[online] Available at: https://asic.gov.au/about-asic/news-centre/find-a-media-release/2018-
releases/18-159mr-major-changes-affecting-reported-net-assets-and-profit-and-other-focuses-
for-30-june-2018-reporting [Accessed 28 Apr. 2019].
Guthrie, J. and Pang, T.T., 2013. Disclosure of Goodwill Impairment under AASB 136 from
2005–2010. Australian Accounting Review, 23(3), pp.216-231.
Investor.qantas.com. (2019). [online] Available at:
https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/
annual-reports/2018-Annual-Report-ASX.pdf [Accessed 30 Apr. 2019].

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Linnenluecke, M.K., Birt, J., Lyon, J. and Sidhu, B.K., 2015. Planetary boundaries: implications
for asset impairment. Accounting & Finance, 55(4), pp.911-929.
Rennekamp, K., Rupar, K.K. and Seybert, N., 2014. Impaired judgment: The effects of asset
impairment reversibility and cognitive dissonance on future investment. The Accounting
Review, 90(2), pp.739-759.