Standards – US GAAP adds #200m to BA results

Different international accounting systems are affecting airlines’ reported profit levels by hundreds of millions of pounds each year, according to an aviation industry expert.

Using an analysis of the results of British Airways, Richard Shaylor, a financial analysis lecturer with Signal Training, says the differences are confusing investors.

The airline publishes its results according to UK standards and has no plans to move to an international standard. But, because it has shares listed on both the London and New York Stock Exchanges, it also includes a revised profit & loss account constructed according to US generally accepted accounting practice in its annual report.

As the table below shows, one of the larger distortions arises from BA’s 1996 figures. Under UK rules, it made profit of #473m, whereas using US rules the figure was #267m.

‘People typically look at a few headline figures and key ratios,’ says Shaylor. But these can be very seriously distorted through the use of different accounting standards where the underlying business is very similar,’ he said.

‘Because aviation is now a global industry, an investor will need to compare different companies around the world to make sense of individual players,’ Shaylor added.

The International Air Transport Association has also been working on harmonisation of accounting standards.

 FRAUGHT WITH DANGER: ACCOUNTING STANDARDS CONFUSION OVER BRITISH AIRWAYS
 PROFITS
            REPORTED NET PROFIT
            (#m)
            UK RULES            US RULES     DIFFERENCE
 1994       274                 145               (129)
 1995       250                 297                  47
 1996       473                 267               (206)
 1997       553                 548                 (5)
 1998       460                 654                 194

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