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ACCG224 BUSINESS REPORT – QANTAS AIRWAYS GROUP

Word Count: 1288

ACCG224 S2 2019 Table of Contents 1.Executive Summary 2 2.Introduction 4 3. ASSB108 & AASB116 in relation to Qantas Airways 4 3.1 Accounting Policies, Changes in Accounting Estimates and Error. 4 3.2. Accounting Policies and the Estimates Qantas uses to measure PPE 5 3.3. Professional Judgement in Accounting Policies and Estimates 6 3.4. Qantas Group on Accounting Policies and Estimates in relation to PPE. 6 3.5. Recommendation for Improvements of Accounting Policies and Estimation In regard to PPE for Qantas Group 7 4.Conclusion 7 5.Reference List 8 6.Appendix 9

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ACCG224 S2 2019

1.Executive Summary This report aims to identify the importance of using Accounting Standards to enhance financial reports. The purpose of the report is to establish how AASB108 contributes and measures AASB116 in the financial statements in accordance with one of the ASX listing companies. Qantas Airways is one of the ASX companies that are available to be discussed regarding their assets that are part of PPE and how it AASB108 contributes to the measurement of PPE. In this report we are observing Qantas’ financial annual report of 2019 and establishing how their assets in PPE are calculated and their way of using policies and estimates to measure. The research has demonstrated the use of AASB108 and how it contributes to AASB116. Through analysing the Annual Report of Qantas, we can identify the different policies that they use to be able to measure and implement the PPE calculations with relevance and integrity. It is recommended that Qantas should enhance their way of calculating PPE to be able to obtain more reliable information and have proper estimation with fair value. Overall, Qantas Airways must establish its information with importance and relevance to all its stakeholders and investors.

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ACCG224 S2 2019 2.Introduction Financial Reporting plays an important role in demonstrating a company’s financial statement and position. It allows companies to share their annual position and occurrences to lenders, shareholders, and investors. As companies develop financial statements and reports, it must reflect relevant Australian Accounting Standards. This is to ensure that the company establishes integrity and fairness. The whole purpose of generating financial reports is to provide shareholders the ability to understand that the entity does establish a true representation of information and consistently updates their reports using current Australia Accounting Standards.

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ACCG224 S2 2019

3. ASSB108 & AASB116 in relation to Qantas Airways 3.1 Accounting Policies, Changes in Accounting Estimates and Errors Ensuring that companies do continue to keep regulated with the accounting standards, it is important companies are following the Australian Accounting Standard Board standard of AASB108 (Accounting Policies, Changes in Accounting Estimates and Errors). Accounting policies are set principles and practices that are applied by entities in preparing financial statements. AASB108 is an accounting standard that establishes the selection and changes of accounting policies, as well as the disclosure to those changes in accounting policies and correction of errors (Australian Account Standard Board 2015). The purpose of developing this accounting standard is to enhance the reliability and comparability of entities’ financial statements. The changes that occur result in financial statements providing relevant information regarding transactions, financial position or financial performance. Through assessing the different aspects of AASB108 – changing estimates, retrospective restatement, Material omission, etc. Entities must assume to have a reasonable understanding and can influence economic decision making. Professional Judgement is the application of applying relevant information in making informed decisions about the actions that are appropriate for specific circumstances. (Ivan 2016) When judgments are made, different conclusions can be reached regarding the Accounting Standards. The current impact of professional judgement with Accounting Policies, Estimates and Errors are to attempt to avoid being subjective and to provide reliable and transparent information for entities to go by. Without professional judgement, there would be many discrepancies that can cause corruption in the economic sector.

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ACCG224 S2 2019

3.2 Accounting Policies and the estimates Qantas uses to measure PPE Property, Plant, and Equipment are tangible items that are supply of goods or services. Tangible items are expected to be used for more than one accounting period. These tangible items have specific uses within the entity. Qantas is Australia’s flag carrier that operates all over the world. Qantas has had an underlying profit of 1.3 billion before tax (Qantas Group 2019). It consistently transforms and create values for their stakeholders, opportunities and provide unforgettable experiences for customers. Developing financial reports, Qantas aims to operate with integrity by being responsible and provide safety towards the community. Also, maintains strong corporate governance and transparency in reporting. Accounting policies and estimates for Qantas vary. For all entities, they must be able to identify financial statements and compare it over time to be able to identify different trends in their financial performance. The same accounting standards will be applied to each period of the asset is made unless there is a change in the accounting policy. For assets such as Qantas Aircrafts, it should be revalued in accordance with AASB116 (Property, Plant and Equipment) rather than the standard of AASB108. Evaluating the Annual Report of Qantas 2019, It has demonstrated that with PPE there has been an increase from 2018 to 2019. AASB116 uses multiple concepts of demonstrating the treatment for PPE. Qantas uses the cost model to recognise the items of PPE. The cost model is recognition of an asset item of property, plant, and equipment which shall be carried at its costs less than any accumulated depreciation and any accumulated impairment losses (Australian Accounting Standard Board 2017). Qantas initially recognises the recorded cost, where the fair value of the consideration provided, and the incidental cost are directly attributable to acquisition (Qantas Group 2019). Being directly attributable means the asset is brought to the location and the condition necessary should be available for it to have the capability of operating in the manner needed by Qantas management. The costs of the acquired assets – aircrafts include the initial estimation at the time of installation as well as the costs of removing items. The process also includes the costs of restoring the site of which the items were located and recognises any existing liabilities. Depreciation is also included in measuring PPE. Qantas Group establishes that the assets acquired demonstrates a useful life and are depreciated from the date of acquisition or from the period it is available to be used. The costs of any improvements are depreciated from the remaining useful life available of the asset or whichever period is shorter. The useful life of the asset of PPE to the Qantas group is reviewed annually and analysed having included the commercial and technological developments.

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ACCG224 S2 2019

3.3 Professional judgement in Accounting Policies and Estimates It’s important that in financial reporting all companies should represent all relevant and truthful information regarding accounting policies of PPE. Resulting with uncertainties of valued assets in business activities, items cannot be precisely prescribed with a cost but can only be estimated based on reliable information and acquisition of the asset. Through PPE, the recording of assets acquired should be recorded at the cost period. This represents reliable information, and verifiability. This means that at initial cost of the item, and useful life when depreciated can be determined through a third party and still obtain the same results. Any changes regarding the assets itself, with improvements or any advancements should be also notified with integrity. This makes sure that costs of preparation and installations should be provided as directly attributable costs. Directly Attributable costs are incurred before the asset is used and are necessary before the assets can be use by the entity. 3.4 Qantas Group on Accounting Policies and estimates in relation to PPE Qantas Group focuses on looking ahead, delivering and acting on responsibilities to be able to achieve high valued standards towards their clients, stakeholders and provide customers with invaluable experiences. Qantas Group generates future benefits for aircrafts. Their business contributes to the environment of high fuel costs and low Australian Dollar. Expecting to be used during more than one period, enhancing and restoring assets with commercial developments have acquired for safety for the environment. This demonstrates that Qantas Group aims for the assets to provide probable future economic benefits. Through using the cost model, Qantas Group was able to measure an asset’s cost reliably from the date of acquiring the asset and aims to minimise any impairment losses. By obtaining a fair value, the Qantas group is not trading the items for cash but is attempting to estimate what benefits it would receive from obtaining that asset and its fair value. Observing the fair value was obtained through appropriate judgement and estimations, allowing us to recognise an initial cost of the asset. The date of acquiring that asset should also be the date the fair value is measured. This is when the Qantas Group obtained control of the asset. With the acquisition date and fair value relating to each other, it definitely provides relevant information regarding measuring the cost of the asset. Hence, the Qantas Group demonstrate their professional judgement alongside the accounting policies of obtaining control and expect probable future benefits.

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ACCG224 S2 2019

3.5 Recommendation for improvements of Accounting Policies and Estimations in regard to PPE for Qantas Group Qantas Group currently uses the cost model to measure the class of assets available. Although the Cost model is an appropriate way to measure the assets, it is believed that the revaluation model is an enhanced approach to take. By changing to the revaluation model, it can increase the relevance of information because current information would be made available. However, by changing to the revaluation model it would decrease the reliability of information due to the fair value requiring estimation. Hence, Qantas Group needs to assess the benefits of changes before acting upon that change. 4. Conclusion To conclude, Accounting Policies and Estimation play an important aspect of PPE. This is because it allows entities to provide relevant and reliable information to create economic decisions.

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ACCG224 S2 2019 5. Reference List Australian Accounting Standards Board 2015, Accounting Policies, Changes in Accounting Estimates and Errors, Accessed: 23rd September 2019, https://www.aasb.gov.au/admin/file/content105/c9/AASB108_08-15.pdf Australian Accounting Standards Board 2017, Property, Plant and Equipment, Accessed: 24th September 2019, https://www.aasb.gov.au/admin/file/content105/c9/AASB116_0704_COMPjun16_01-17.pdf Ivan, I. (2016), The importance of professional judgement applied in the context of the International Financial Reporting Standards, Audit Financiar, vol. 24, no. 10(142)/2016, pp. 1127-1135, DOI: 10.20869/AUDITF/2016/142/1127 Qantas Airways 2019, Qantas Annual Report 2019, Qantas Airways, pp.101, Accessed: 24th September 2019, https://www.asx.com.au/asxpdf/20190830/pdf/448277f2dwht80.pdf Qantas Airways Limited 2019, Qantas Airways Limited Supplementary Presentation, pp.10, Accessed: 24th September 2019, https://investor.qantas.com

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ACCG224 S2 2019 6. Appendix

Source: Qantas Airways Supplementary Presentation 2019

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