Introduction
Jet Star runs under the brand name of Qantas Airways and recognised for being the low cost airline operator from Australia (Qantas.com. 2017). Virgin Australia is discerned as the second largest airline operator after Qantas Airways operating in Bowen Hills in Brisbane (Virginatlantic.com. 2017).
The study is indented to check the compliance of the financial report with the prescribed standard. The various aspects of the study have been further able to state about the introduction of prudence to address the disparity in the report. The latter section of the report has shown rational for shareholders to invest in the companies.
Conceptual framework of Accounting for both the companies
The analysis of the financial statement has revealed that the accounting standard of both the company is in compliance with AASB and Corporations Act 2001. In addition to this, the standard is based on historical cost evaluation, except for fair value assessment of asset and liabilities. The revenue recognition of the companies has been further seen to be based on “AASB 118 Revenue”, “AASB 111 Construction Contracts and Interpretation 13 Customer Loyalty Programmes”. Despite of the adherence to the aforementioned standard, both the companies is yet to adopt the new standard “AASB 15 Revenue from contracts with the customers” on or after 1st January 2018. Both the companies has been further seen to be determine whether there is a possibility of replacing the prevailing standard of “AASB 117 for leases” and revise the framework based on AASB 16. Jet Star and Virgin Airlines has further recognised the impairment of assets and the various types of financial guarantees based on AASB 137 Provisions, Contingent Liabilities and Contingent Assets”(Rossing 2013).
Prudence theory applied in both the companies
The main rationale for following the prudence theory is evident with non-overestimation of the revenues. This has been further evident with the non under estimation of the liabilities. The financial statements have been considered as per the probable transactions. The main consideration for the prudence has been further seen to be taken into account based on the on taking any probable transactions. The main implementation of this has been evident with “AASB 15 Revenue from Contracts with Customers (AASB 15)” and “AASB 16 Leases (AASB 16)” and it has been also sure about the replacement of the existing standards (Pernica and Hanušová 2015).
The assessment of the viability of the method has been further taken into consideration based on effective date of the implementation of the standards for “AASB 15 Revenue from Contracts with Customers (AASB 15)” and “AASB 16 Leases (AASB 16)”. The company is yet decide on the recognition of new standards for leases and then only adopt aforementioned standard on or after 1 January 2019. The various types of the consideration of the assets has been considered for the regular review of the assets and to know the various types of the reasons for declining the values for the same. Another important prudence aspect has been considered based on not writing off the values associated to fixed assets (Barker 2015).
Criteria followed for financial data
Total Assets- It has been discerned that the total asset of Qantas Airways is $ 17708 m in 2016, whereas the total asset of Virgin Australia is $ 6886.9 m in 2016. The net benefits of the airlines have been seen to be based on “fair value of plan assets less the present value”(Ebert and Wiesen 2014).
Tangible Assets and Intangible Assets- The tangible assets are based on the revenue recognition of various types of non-current tangible assets. The various types of intangible assets are seen to be considered for impairment losses less cost (Rossing 2013).
Depreciation – Both Qantas Group and Virgin Airlines have been seen to recognize the depreciation as per straight line basis for PPE except for freehold land. The depreciation rates on the assets are taken into account as per total valuation cost and residual values of the estimated useful life of the assets (Bauer, O’Brien and Saeed 2014).
Rationale for the shareholders investing in the companies
The rationale of the consideration of the shareholders investing in the company has been evaluated based on director’s statement. The data co9nsidered from the annual report of Virgin Airlines has been able to state on the on the increase in the revenue from $4,749.2 million to $5,021.0 million. It has been further discerned that the total equity of 60% has been considered based on the data gathered on 16 October 2014. It has been further discerned that the investors should focus on the increasing net operating expenditure from $4,802.7 million to $5,278.7 million, as this has been recognised as the only negative side of the company. The various types of the positive aspects have been conducive for the investors to invest in Virgin Airlines (Dobre 2013).
Based on the various implications from the CEO’s statement stated in the annual report of 2016, Qantas Airways has been able to contribute significantly with high financials from 2015-16. It has been seen that the total increase in the financial performance has been seen to be evident with the increase of the operating margin. This has been evident with the soaring high figures for the EBIT recognised for Jetstar Group, Qantas Loyalty, Qantas International and Qantas Domestic. The investors should particularly consider the main aspect of increasing profit before tax from $ 975 m in 2015 to $ 1532 in 2016. Based on the financial analysis it has been it has been further discerned that the operating expenditure are kept at a low level which is a positive sign for the company (Lipka 2013).
Conclusion
The report has shown how the main accounting standard of both the company is seen in compliance with AASB and Corporations Act 2001. The delay in the adoption of the new accounting standards has been seen to the main consideration for the adoption of prudence. The main rational for the investors to invest is due to the increasing revenue and operating margin for both Qantas Airways and Virgin Australia Airlines.
References
Barker, R. (2015) ‘Conservatism, prudence and the IASB’s conceptual framework’, Accounting and Business Research, 45(4, SI), pp. 514–538. doi: 10.1080/00014788.2015.1031983.
Bauer, A. M., O’Brien, P. C. and Saeed, U. (2014) ‘Reliability Makes Accounting Relevant: A Comment on the IASB Conceptual Framework Project’, Accounting in Europe, 11(2), pp. 211–217. doi: 10.1080/17449480.2014.967789.
Dobre, E. (2013) ‘ScienceDirect Banking Accounting Between Prudence and Flexibility’, Procedia Economics and Finance, 6(13), pp. 621–626. doi: 10.1016/S2212-5671(13)00181-0.
Ebert, S. and Wiesen, D. (2014) ‘Joint measurement of risk aversion, prudence, and temperance’, Journal of Risk and Uncertainty, 48(3), pp. 231–252. doi: 10.1007/s11166-014-9193-0.
Lipka, D. (2013) ‘The max U approach: Prudence only, or not even prudence? A Smithian perspective’, Econ Journal Watch, 10(1), pp. 2–14.
Pernica, M. and Hanušová, H. (2015) ‘Certain Aspects of the Use of Accounting Principles in the Accounting of Public Corporations’, Procedia - Social and Behavioral Sciences, 213, pp. 345–350. doi: 10.1016/j.sbspro.2015.11.549.
Rossing, J. P. (2013) ‘Prudence and Racial Humor: Troubling Epithets’, Critical Studies in Media Communication, 31(4), pp. 1–15. doi: 10.1080/15295036.2013.864046.
