Audit Analysis of Qantas Airways
Audit Analysis of Qantas Airways
Introduction
Qantas, Queensland and Northern Territory Aerial Services Limited is Australia's national airline, it is the second largest airline in the world. It provides flight services to almost 80 destinations from Australia in the world. It also operates in New Zeeland as a national service provider www.qantas.com.au. In this study, we will discuss some of the inherent risks in Qantas and how they may lead to misstatement of financial results for the year 2012.
Inherent Risks
As per analyses of Qantas Financial Statements for the year 2011, we have discovered the following inherent risks (Annual Report, 2012,p. 032):
Industrial Strikes
Qantas have been going through tough arguments with unions throughout 2011 and beginning of 2012. However these disputes have been resolved by Fair Work Australia on 31 October 2011(Qantas, 2011, n.d.)
Financial Misstatement
Industrial strikes are considered as a part of operating costs for any company. Thus, this loss can be easily included in operating expenses. Such events led to bad publicity and high costs, so managers tend to omit costs of these disputes in financial statements, that's why we can't find the exact break up of expenses of these disputes in the financial statements of Qantas. These costs or expenses should be shown separately in form of notes for the shareholders' information. We can say managers might have mistakenly omitted to show the exact expense in its financial statements but it must have been adjust in form of manpower and staff related expense under the head of operating costs. We must note that the further break up of this head does not include any item related to industrial disputes, thus it may be another misrepresentation of financial results by Qantas.
Evidence of misstatement
These strikes have resulted in huge losses as flights were grounded on 29 October 2011 and Qantas had to refund its customers for the inconvenience. It was expected to cost $20 M per day of strike and 68000 to 80000 passengers were impacted by the incident badly (Qantas, 2011, n.d.). The total loss in revenues was of $194 M in 2012 due to these disputes.
Price deviation of fuel
Qantas and overall all companies operating in Australia are experiencing increased fuel prices from past few years. A single barrel costs Qantas more than $US 120 in January 2012
Financial Misstatement
This risk can be misstated by increasing the quantity of tickets i.e. sales to reduce the impact of the cost of fuel. Un addition, one can also manipulate the tax benefits for the year to weaken the impact of cost of goods sold. Since Qantas was also facing losses in exchange rate fluctuations so it may also manipulate the share of losses from one category to another easily as both items are genuinely soared up for all the economy causing declining profits.
Evidence of misstatement
Profits were impacted by 19% increase in fuel prices (Annual Report, 2012). It can be further proved by Qantas strategy of increased fares to incorporate the effect of increasing oil and fuel ...