Qantas Airways Limited's Financial Statement Analysis And Taxation Essay.

(i) From your firm’s financial statement, list each item of reported in the CASH FLOWS STATEMENT and write your understanding of each item. Discuss any changes in each item of CASH FLOWS STATEMENT for your firm over the past year articulating the reasons for the change.

(ii) Provide a comparative analysis of your company’s three broad categories of cash flows (operating activities, investing activities, financing activities) and make a comparative evaluation for three years.

(iii) What items have been reported in the other comprehensive income statement

(iv) Explain your understanding of each item reported in the other comprehensive income statement

(v) Why these items have not been reported in Income Statement/Profit and Loss Statement

(vi)What is your firm’s tax expense in its latest financial statements?

(vii) Is this figure the same as the company tax rate times your firm’s accounting income? Explain why this is, or is not, the case for your firm.

(viii) Comment on deferred tax assets/liabilities that is reported in the balance sheet articulating the possible reasons why they have been recorded.

(ix)Is there any current tax assets or income tax payable recorded by your company? Why is the income tax payable not the same as income tax expense?

(x) Is the income tax expense shown in the income statement same as the income tax paid shown in the cash flow statement? If not why is the difference?

(xi)What do you find interesting, confusing, surprising or difficult to understand about the treatment of tax in your firm’s financial statements? What new insights, if any, have you gained about how companies account for income tax as a result of examining your firm’s tax expense in its accounts?

Explanation of items in Cash Flow Statement and Changes Over the Past Year

This report explains about the financial statement analysis, tax payment and various accounting standards and polices which have been used by the company to record the tax provisions of the company. The Australian economy and the policies of the governance have impacted on the taxation policies of the country to make the effective changes into the corporations of the country. In this report, Qantas airways limited has been chosen for ingesting and understanding the financial statement, taxation recording policies etc.  

Qantas airways limited is one of the oldest and largest aviation firm in the aviation industry of Australian market. The company is offering various destinations at domestic as well as international level to its customers. The company has been founded in 1920 at Australia and currently it has lunched various subsidiaries company to manage the activities and run the business of the company efficiently (Our Company, 2018).

1. Analysis over cash flow statement:

Cash flow statement is one of final and main financial statement of the company that measures the total cash outflow and inflow of the company in a particular period. Mainly, the cash flow statement measures the total cash flows of the company in three categories which are investing activities, operating activities and financial activities.

The cash flow of Qantas airways limited explains that the cash flow from operating activities of the company has been enhanced to $ 2,704 from $ 2819. The cash flow from operating activities has been lowered due to changes into the noncash items cash flow (annual report, 2017).

Further, it has been found that the company has reduced the investments into the PPE as well as the revenue from selling the PPE has also been lower. Other investing activities of the company also briefs about less cash outflow from last year. Due to it, the investment cash outflow of the company has been higher from last year.

The debt issue and repayment policy also briefs about higher cash outflow of the company from last year (Towery, 2017). In total, it has been found that the net changes in the cash flow in 2017 has been lower and explains that the cash position of the company has been better.

2. Comparative analysis:

Further, the cash flow position of the company of last 3 years have been investigated and it has been found that the operating activities and investing activities position of the company has been lowered in last 3 years. However, the company has managed to enhance the level of cash inflow from financial activities. On the basis of the all three activities of the company, it has been found that the changes in the net cash flow of the company has been improved from last year but still few changes are required by the management to make cash inflows position better (Robinson et al, 2015). Free cash flow of the company explains about better cash position of the company.  

Comparative Analysis of Three Broad Categories of Cash Flows

(annual report, 2018)

3. Income statement analysis:

On the basis of evaluation on the income statement of Qantas limited, it has been recognized that the revenue nature expenses have not been added in the income statement of the company. The calculations of other comprehensive data of the company are as follows:

It explains that the total comprehensive income of the company is $ 1033 million in 207 and $ 850 million in 2016. It explains that the $ 1000 million has not been added by the company in the income statement of the company.

4. Explanation on income statement items:

The annual report (2017) of the company explains that the cash flow hedges, transfer of hedge in the income statement, recognition of net cash flow, foreign country translation, share of comprehensive income etc are the main items of comprehensive income statement of the company. On the basis of these items, it has been found that the comprehensive income statement explains about the net profit position of the company (Morris, 2017). These items could not be added by the company into income statement of the company due to IFRS and GAAP issues.

5. Reasons behind not added these items in income statement:

Comprehensive income are those gains, expenses, revenues and losses under IFRS and GAAP which are excluded from the income statement and net income of the company. These items are excluded from the income statement of an organization to lesser the complexity in the final statement of the company. It has also been to offer better result to the stakeholders of the company about the company.

6. Tax expenses:

Tax expenses are required to be paid by the every business t the government. The tax expenses explains bout the morality and duty of an organization towards the government of the company. The total tax expenses of the Qantas limited are $ 328 in current year which has been lowered from $ 395 from last year.

It explains that the tax liability of the company has been lowered. And with the decrement in the income tax of the company, the liabilities of the company have also been lowered. It express about the better performance and position of the company.

7. Similarity in tax rate and net income accounting tax:

After making an evaluation over the total tax expenses of the Qantas airways limited, it has been found that the AASB 112 rules of taxation are followed by the company. However, it has been measured that both the amount are quite different to each other. The tax expenses of the company are $ 328 million. The accounting profit of the company is $ 852 million. And the tax rate of the company is 30% (Pawsey, 2016).

Items in Other Comprehensive Income Statement and Explanation

The tax amount of the company must be (852*30% = $ 255.6) whereas the tax expenses of the company are $ 328 which is quite higher than the expected tax amount of the company.

The differences have taken place due to variation in the accounting recording system and the AASB 112 rules as well as while calculating the tax expenses of an organization, some items should be ignored and some must be added from the accounting profit of the company (Garrett, Hoitash and Prawitt, 2014). Due to it, the differences have taken place. Further, it has also been recognized that the tax amount of the company has been calculated through considering all the data and rules by the management of the company.

8. Deferred tax amount:

The deferred tax assets and deferred tax liabilities of an organization explains about the differences among the taxable income of an organization and the total income which has been reported in the income statement of the company. Deferred tax assets (DTA) are the contradictory of DTL (deferred tax liabilities) of an association. Deferred tax liabilities are the position where the taxable income of the company is lower than the total reported income of the company and vice versa (Li and Tran, 2016).

The annual report (2017) of the company explains that the deferred tax liabilities (DTL) of Qantas are $ 353 and the DTA (deferred tax assets) of the company is none in current year.

The annual report (2017) of the company explains that the recordable income of the company was higher than the taxable income of the company and thus the deferred liabilities of the company have been occurred. Company has recorded the amount in the balance sheet under the liabilities section.

However, the last 3 years evaluation on the deferred tax liabilities explains that in 2015 and 2016, company has paid more tax amount to the government of the company and thus the amount has been shown as assets and in 2017, the lower tax amount has been paid so it has been recorded in the liabilities section of the company (Landoni and Zeldes, 2017). .

9. Current tax payable:

Further, the amount of current tax payment and payable has been evaluated and investigated in the annual report of Qantas limited to recognize the performance f the company and it has been found that the tax payable amount of the company in the year of 2016 was nil and in 2017, it has been $ 4 million.

Reasons Why Certain Items Were Not Reported in Income Statement

The income tax payable amount indicates about the total amount which must have been paid by the company in current year. But due to some significant reason, company has failed to pay the tax amount to the government. On the basis of the evaluation, it has been found that the tax recording system and tax payment system of the company is quite competitive and company is following the AASB rules to manage the performance (Ladas, Negkakis and Samara, 2017).

Income tax payable amount cannot be same as the income tax expenses of the company as the payable amount is the difference among the income tax expenses amount and the total amount of tax which has been paid by the company. Income tax payable amount is shown in the liability side of balance sheet of an organization whereas the income tax expenses are shown in the income statement of the company to measure the net profit of the company.

10. Differences among income tax amount in cash flow and income statement:

Further, the income statement and cash flow statement of the company has been compared to assess that whether the entire amount of taxation has paid in current year or some changes have been done by the organization while paying the tax amount. Cash flow statement measures the total cash outflow and inflow of an organization in a particular time period.

In annual report (2017) of Qantas limited, it has been recognized that the cash flow statement briefs about the $ 4 million tax amount has been paid by the company in current year while the total calculated tax amount of the company is $ 328 million (Eberhartinger, Genest and Lee, 2017).

It express that the performance of the company is quite competitive and the differences into the income tax of cash flow statement and income statement of the company has been taken due to income taxes recording and payment system of the company.

The company has shown all the tax expenses calculations and the notes of accounts about the tax into the annual reports according to the disclosure policy to make it easier to the user to understand about the tax implication, tax amount, tax payable amount, and deferred tax liabilities etc of the company (Brigham and Ehrhardt, 2013).

It has been recognized that the tax amount of last year have been repaid by the company and the current year tax amount has been shown by the company in its balance sheet as payable amount.

11. Tax treatment:

Understanding of Tax Expense in Latest Financial Statements

On the basis of the evaluation on the tax amount, tax implications and tax recording on the Qantas limited, following points have been recognized:

Interesting factor:

The interesting factor of taxation system is that it could be changed at any time with the changes into the taxation policy and taxation accounting system of the country. I have found that explaining about every tax amount in the annual report is quite interesting as it makes the annual report of the company more impressive.

Confusing factor:

While investing on the taxation figures of Qantas limited, I have measured that there are various accounting and taxation figures such as tax implication, tax amount, tax payable amount, and deferred tax liabilities etc. these figures could confuse the people from non accounting background.

Surprising factor:

The surprising factor about the taxation system is how an accountant could place all the figures without any conflicts and the implications in the accounting system of the company.

Difficulty:

I have faced no difficulties in this study. However, the study was quite interesting and new information and knowledge has been gained from this study.

Conclusion:

To conclude, the Qantas limited is performing well in the market and company is following the AASB 112 rules, IFRS rules and AASB rules to manage the performance and the position of the company in the market. It further explains about the better performance and position of the company in Australian industry,

References:

Annual report. 2018. Qantas Airways limited.(online). Available at: https://investor.qantas.com/FormBuilder/_Resource/_module/AH_NGR9NxUaXc0W8Qv3Kfg/docs/QantasAnnualReport2017.pdf (accessed 21st May 2018).

Our Company. 2018. Qantas Airways limited.(online). Available at: https://www.qantas.com/travel/airlines/company/global/en (accessed 21st May 2018).

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Eberhartinger, E., Genest, N. and Lee, S., 2017. Practitioners’ Judgment and Deferred Tax Disclosure: A Case for Materiality.

Garrett, J., Hoitash, R. and Prawitt, D.F., 2014. Trust and financial reporting quality. Journal of Accounting Research, 52(5), pp.1087-1125.

Ladas, A.C., Negkakis, C.I. and Samara, A.D., 2017. Accounting quality deferred tax and risk in the banking industry. International Journal of Banking, Accounting and Finance, 8(1), pp.1-19.

Landoni, M. and Zeldes, S.P., 2017. Should the government be paying investment fees on $3 trillion of tax-deferred retirement assets? Austl. Tax F., 52, p.169.

Li, E.X. and Tran, A.V., 2016. An Empirical Analysis of the Tax Burden of Mining Firms versus Non-Mining Firms in Australia. Austl. Tax F., 31, p.167.

Morris, J.L., 2017. Classification of Deferred Tax Assets and Deferred Tax Liabilities: An Evaluation of FASB's Attempt at Standards Simplication. Journal of Accounting and Finance, 17(8), pp.198-208.

Pawsey, N., 2016. Project: Review of IFRS adoption in Australia. Australia.

Robinson, L.A., Stomberg, B. and Towery, E.M., 2015. One size does not fit all: How the uniform rules of FIN 48 affect the relevance of income tax accounting. The Accounting Review, 91(4), pp.1195-1217.

Towery, E.M., 2017. Unintended consequences of linking tax return disclosures to financial reporting for income taxes: Evidence from Schedule UTP. The Accounting Review, 92(5), pp.201-226.

Tran, A., 2015. Can Taxable Income Be Estimated from Financial Reports of Listed Companies in Australia. Austl. Tax F., 30, p.569.