Since the introduction of the international accounting standards, $3.5bn
(£1.89bn) of net assets have been written off the balance sheets of airlines,
and even though the IFRS transition is now complete, volatile accounts look set
to become a part of life for CFOs in the sector.
Big Four firm KPMG analysed the filings of 23 global airlines, including KLM
and British Airways, and found that airlines have been especially vulnerable to
the fair value accounting ethos embedded in IFRS.
This is because businesses in the sector are exposed to fluctuations in fuel
prices, exchange rates and interest rates. Airline companies also have more
volatile cashflows and larger asset bases, which has left finance directors in a
difficult position when there are sudden dips in demand as a result of factors
such as the SARS virus and the threat of terrorism.
Martin Sheppard, KPMG’s global head of aviation, said that because of these
exposures the introduction of IFRS was almost certain to cause greater
volatility in airline accounts.
‘The complex new accounting rules governing hedging activities are burdensome
and will lead to increased profit volatility. New rules over asset valuation
measurement will also leave airlines vulnerable to asset impairment,’ Sheppard
The additional pressure that IFRS has placed on airline finance heads has had
some benefit for investors, who are beginning to see harmonisation between the
accounting policies of different airlines.
For the first time there is a degree of comparability between the accounts of
airlines operating out of a diverse spread of countries. And as the IASB and US
standard setter, the FASB, continue to work on converging IFRS and US GAAP,
comparability should improve even further.
But KPMG warned that although the introduction of IFRS had improved
comparability, there were still options available that allowed for differing
treatments. This could lead to material differences in reported numbers.
The areas that could be affected by different interpretations were
maintenance, financial instruments, debt funding costs and aircraft
acquisitions. These are all key parts of the industry and can have a substantial
impact on reported numbers.
The IASB and FASB have addressed them as part of their convergence programme.
The IASB is reviewing its standard for debt and the FASB is taking a second look
at accounting for maintenance.
ScottishPower has ditched PricewaterhouseCoopers in favour of Big Four rival
Deloitte. The deal is a major loss for PwC and a big gain for Deloitte, with the
audit generating fees of £19m for the last three years. In 2005, PwC pocketed
£1.7m for the statutory audit alone and a further £4.6m for extra services such
as compliance advice.
The finance director of WPP, Paul Richardson, earned £1.4m in 2005.
Richardson’s earnings were helped by a bonus of £486,000 and an executive share
award of £450,000. The advertising company’s FD also pocketed a £463,000 salary
and benefits worth £91,000. WPP grew revenue by 25% to £5.3bn during the period.
Profit before tax was up by 36% to £592m.
Headhunter Whitehead Mann saw revenues for the year ended 31 March 2006 dip
from £47.2m to £39m. The fall was a result of the closure of the company’s North
American operations, which formed part of a major restructuring of the
recruitment company. Chairman Jonathan Baines said the company had gone through
a period of consolidation and was now positioned to grow.
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