International Accounting Standards: Auckland International Airport Limited - Assignment Example

Term Paper: FINANCE AND ACCOUNTING of the Table of Contents Part A: Research 4 Part B: Essay 23 References 28 Part A: Research 1 a) Auckland International Airport Limited Annual Report 2012 Auckland International Airport Limited is a recognized company under Auckland Airport Act 1987. It commenced its operation on 20 January 1988 under Companies Act 1955. The company is registered under Financial Reporting Act 1993. It provides with the airport facilities and the supporting infrastructures in Auckland. It earns its revenue from the airport retail shops, aeronautical activities, investment properties, car parking facilities and also from the rents and charges that are associated with the operation in an airport. b) Accounting policy of Auckland International Airport Limited (Page 47- 52) The financial statements are prepared according to the Generally Accepted Accounting Practice in New Zealand (NZ GAAP) and also based on the Financial Reporting Act 1993. Financial statements are prepared based on the historical cost except for the land, financial instruments investment, services and buildings, aprons, taxiways and the infrastructural assets which are measured at the fair value. They meet the terms and conditions of International Financial Reporting Standards (NZ IFRS), and also comply with other applicable Financial Reporting Standards. The company follows the new accounting standards made which are as follows: i) Amendment is made for the preparation of annual reports during the period beginning on or after 1st July, 2000. Modifications are also done to the standards to match NZ IFRS with IFRS and the Australian Accounting Standards. ii) Modifications are made to NZ IFRS 2010 and those are effective after 1st January 2010. iii) Revised NZ IAS 24 is effective from 1st January 2011. (c) Segments of information (Page 26) The following are the segments of information: i) Financial performance analysis ii) Financial position analysis iii) Operating efficiencies of the company d) Operating segments of the company The following are the operating segments of Auckland International Airport Limited from where it collects its revenue: i) Airfield income: Charges for airfield landing are for MCTOW aircraft. ii) Terminal Service charges (TSC): TSC includes the rental for space that is given to the passengers and recoveries of cost from airlines for the international terminals and from the area of operation. iii) Passenger service charge (PSC): PSC are imposed on the passengers who are above 12 years of age and provide part of return to the company on its aeronautical assets. iv) Rental income: It earns its rental income from the space that is given in lease such as standalone investment properties and terminals and cargo buildings. v) Retail Income: The Company receives revenue for concession from the retailers within international and domestic terminals which includes the specialty stores and the duty free, foreign exchange and also from the food and beverage shops. vi) Car Park Income: In 30 June 2012 the Company owned 8,595 car parks as the figure increased to 6.5% from 7,988 in June 2011. vii) Other income: The other income includes utilities i.e. sale of gas and water, electricity, recovery of rates from the tenants and the transport license fees (Auckland International Airport Limited, 2012). (e) Value of the segments a) Operating Revenue (in 2012) Segments 2012 ($ in millions) Airfield income 77,299 Passenger Services Charge 83,081 Terminal Services Charge 28,604 Retail Income 120,083 Rental Income 54,974 Car Park Income 36,620 Other Income 23,802 b) Gross Profit $ 000 Gross Profit 149,209 c) Net Profit after Tax $ 000 Net Profit After Tax 194,290 d) Assets $ 000 Total Assets 60,807 e) Liabilities $ 000 Total Liability 28,185 2 a) Air New Zealand Limited Annual Report 2012 Air New Zealand Limited is national airline of New Zealand which is based in Auckland. b) Accounting policy of Air New Zealand Limited (page 7) Air New Zealand Limited prepares financial statements according to the New Zealand Generally Accepted Accounting Practice (NZ GAAP). NZ GAAP includes New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other financial reporting standards for identifying the profit oriented entities. The financial statements abide by the NZ IFRS and International Financial Reporting Standards (IFRS). Amendments to FRS 44 and New Zealand Additional Disclosures are made in April 2011. New Zealand Additional Disclosures were approved on 1 July 2011. In addition to the amendments that are made in the New Zealand International Financial Reporting Standards (IFRS) to synchronize with the International Financial Reporting Standards and the Australian Accounting Standards was approved on July 2011. The adoptions did not have any significant effect on financial statements that are presented and resulted in negligible reduction in level of disclosure. Preparing the financial statements requires use of complex accounting estimates. The directors are required to exercise their judgment for applying Group accounting policies. The assumptions and the estimates are based on the historical data and experience that the company has faced. The director’s board evaluates the assumptions and the estimates on the ongoing basis. The areas where complex judgment is required are the following: a) Revenue in advance: These include the transportation sales, which are paid in advance and also the loyalty programs. b) Maintenance of provisions: These include the maintenance of aircraft under the lease arrangements and a provision is prepared during the lease period for maintaining the lease return obligation. c) Estimation of impairment of non-financial assets: Non-financial assets, which includes the property, intangible assets, plant and equipment and investments in entities. These are evaluated at the reporting date to find out whether there are any chances that the amount may not be recoverable. d) Useful values of aircraft related assets: Judgments and estimates are provided by the management to identify the expected life of the assets related to aircraft. The life is determined based on the expected services that can be provided by the assets. (c) Segments of information (Page 1) The following are the segments from where information can be obtained: 1) Statement of Financial Performance 2) Statement of Accounting Policies 3) Statement of Comprehensive Income 4) Notes to the Financial Statements 5) Statement of Changes in Equity 6) Independent Audit Report 7) Statement of Financial Position 8) Five Year Statistical Review 9) Statement of Cash Flows d) Operating segments of the company Air New Zealand Limited operates in only one segment. The primary business of the company is the transportation of cargo and passengers (Air New Zealand Limited, 2012). (e) Value of the segments a) Operating Revenue (in 2012) Segments 2012 ($ in millions) Transportation 4,483 b) Gross Profit $ in millions Gross Profit 4,514 c) Net Profit after Tax $ in millions Net Profit After Tax 209 d) Assets $ in millions Total Assets 292 e) Liabilities $ in millions Total Liability 150 3 a) Briscoe Group Limited Annual Report 27th January, 2013 (period ending in 52 weeks) Briscoe Group is a retail chain in New Zealand. It owns about 90 stores all over New Zealand which are trading under the segments of Living and Giving, Briscoe Homeware, Rebel Sport and Urban Loft. b) Accounting policy of Briscoe Group Limited (page 13) The financial statements are made according to the New Zealand Generally Accepted Accounting Practice (NZ GAAP). They abide by the New Zealand IFRS. Financial statements also abide by the IFRS, USA. The amendments and the new standards are applied as FRS 44 New Zealand Additional Disclosures and Harmonisation Amendments. The effective period of the amendments is from 1 July 2011. FRS 44 makes New Zealand disclosures for the entities which are reporting under the NZIFRS. The disclosure is repositioned from NZ IFRSs to elucidate the fact that the disclosures are required in addition to the IFRSs. The director’s board have selected to incorporate the comparative information, which is providing with relevant information to the financial statement users. The amendments modified information in NZ IFRSs for harmonising the financial reporting standards in New Zealand and Australia and make them in line with the IFRS. The amendments to the interpretations of the existing standards and the new standards are published and it became mandatory for the later periods. The key items that are decided by the director’s board are IFRS 9, which is the Financial Instruments that are mandatory for the periods beginning after 1 January 2015. This replaces the multiple measurements and classification models of IAS 39 Financial Instruments for measurement and recognition with a unique model, which can be classified into two types i.e. fair value and amortised cost. The model for classification is determined by business entity for controlling the financial assets. The model also manages the cash flow of the financial assets. This will have impact on financial statements through the disclosure of the measurement and recognition of the financial liabilities and it remained to NZ IAS 39. (c) Segments of information (Page 29) Information regarding the operating segments is as follows: i) Income statement ii) Balance Sheet iii) Cash Flow statement iv) Income Tax expenses v) Earnings per share d) Operating segments of the company The Briscoe Group has two operating segments. They are defined by the retail sectors which operate under homeware and sporting goods. The revenue generated by the Group is from the sales to the customers and from other retail business that has no reliance on the customers. There have been no inter-segment sales during the period 2012. The accounting policies for the segments are same as the accounting policies that are followed by the Group. Profit from the segment signifies that the profit that is earned by each of the section and also identifies the income statements that are associated with two ancillary trading companies The Sports Authority Limited and Briscoes (NZ) Limited (Briscoe Group Limited, 2013). (e) Value of the segments a) Operating Revenue (in 2012) Segments 2012 ($ in millions) Retail business 452,702 b) Gross Profit $ ‘000 Gross Profit 181,104 c) Net Profit after Tax $ ‘000 Net Profit After Tax 30,468 d) Assets $ ‘000 Total Assets 191,831 e) Liabilities $ ‘000 Total Liability 63,250 4 a) Michael hill International Limited Annual Report 2012 Michael hill International Limited is a chain of jewellery retailer in New Zealand. b) Accounting policy of Michael hill International Limited (Page 52) The financial statements are prepared according to the New Zealand Generally Accepted Accounting Practice (NZ GAAP) for the year ended 30 June 2012. The financial statements abide by the New Zealand International Financial Reporting Standards (NZ IFRS) and are also related to New Zealand Financial Reporting Standards for calculating profit. Compliance with IFRS New Zealand Accounting Standards comprise of New Zealand International Financial Reporting Standards (NZ IFRS). The consolidated financial statement complies with the NZ IFRS with International Financial Reporting Standards (IFRS). Entities reporting The financial statements of the Group are made for identifying the economic entity of the company which comprises of the company itself and also the subsidiaries. Statutory base It is a public limited company, which is registered under Companies Act 1993 and is situated in New Zealand. The Company is listed under the New Zealand Stock Exchange. The financial statements are prepared according to the requirements of the Companies Act 1993 and the Financial Reporting Act 1993. The financial statements are approved by the Board of Directors for the issue in 16 August 2012. The currency that is used in preparation of the consolidated financial statements is the New Zealand dollars and is rounded up to the nearest thousands. (c) Segments of information (Page 48-61) i) Statement of financial position ii) Statement of Changes in Equity iii) Financial statement iv) Cash Flow Statement d) Operating segments of the company There is only one operating segment for the Group i.e. retail jeweler business. The operating segments are reported in accordance with the internal reporting that is made by the operating decision makers. The decision makers are responsible for the allocation of the resources and also for the assessment of the performance of operating segments that are identified by the Executive Management team (Michael Hills International Limited, 2012). (e) Value of the segments a) Operating Revenue (in 2012) Segments $ ‘000 Retail Jewellery business 468,119 b) Gross Profit $ ‘000 Gross Profit 67,169 c) Net Profit after Tax $ ‘000 Net Profit After Tax 54,097 d) Assets $ ‘000 Total Assets 323,648 e) Liabilities $ ‘000 Total Liability 129,298 5 a) Restaurant Brands Limited New Zealand Annual Report 2012 Restaurant Brands Limited is fast food Company which is based in New Zealand. The company is listed under the NZ Stock Exchange as the RBD. It is responsible for operating most of the New Zealands Pizza Hut, KFC, Starbucks and Carls Jr. Stores. It provides assistance to the support services and also provides training to the independent KFC franchisees. The company is responsible for the administration of the franchise of Pizza Hut and KFC in New Zealand and also has the authority for supervising the work of the Yum Restaurants and Starbucks. It is a limited liability company. The financial statements have been authorized for the issue on 3 April 2012 by the Board of Directors. b) Accounting policy of Restaurant Brands Limited New Zealand (Page 31) The consolidated financial statements are prepared according to the New Zealand Generally Accepted Accounting Practice (NZ GAAP). They abide by the New Zealand International Reporting Standards (NZ IFRS) and also fulfil the requirement of other Financial Reporting Standards which provide appropriate information. The consolidated financial statements also abide by the International Financial Reporting Standards (IFRS).It is presented in New Zealand dollars and are rounded off to the nearest thousand dollars. The following are the important features of the accounting structure of the company: Entities reporting The financial statements of the Group reflect the consolidated financial statements which comprises of the entities of Restaurant Brands New Zealand Limited and its subsidiaries. Historical cost convention The financial statement is prepared based on the historical cost excluding the financial derivatives that are settled at fair value. Statutory base The Company is listed under the stock exchange of New Zealand and is registered under Companies Act 1993. The financial statements are prepared according to the requirements of Companies Act 1993 and the Financial Reporting Act 1993. Critical accounting estimates The financial statement preparation require the management to take appropriate judgments about the financial entities and make correct assumptions and estimations so that it have an impact on the use of the accounting policies and also on the amounts of liabilities, assets, income and expenses. The actual results may have difference from the estimated results. The assumptions and estimates have major risk on the material adjustment to carry forward value of the assets and liabilities from the subsequent financial year. Impairment of Goodwill The Group undertakes the impairment testing of the operating segments. The key assumptions that are used to establish the recoverable amount with the help of sensitivity analysis are prepared in accordance with the requirement of the accounting policies that are followed by the company. Income tax During the ordinary course of business there are many calculations and transactions that are made for the tax determination. The company identify the liabilities for the predictable tax audit which is based on the estimates that whether the additional taxes are due or not. It is identified whether the final tax results vary from the initial tax amount that is calculated or not. If the differences are obtained then these will have an effect on the deferred income tax provision and the income tax during the period in which it is determined. Assumptions and estimates are re-examined on the ongoing basis. The revisions are made to the accounting estimates and are recognized during the period, which is affected in the future. (c) Segments of information (Page 26-61) i) Consolidated income statements ii) Statements of changes in equity iii) Statements of the financial position iv) Balance Sheet iv) Statement of Cash Flows d) Operating segments of the company The group own three operating segments namely Pizza Hut, KFC and Starbucks Coffee. All the three segments provide quick service and have adopted the takeaway restaurant concept. On 14 December 2011, the Group has acquired the operation of the Carl’s Jr chain of restaurants in New Zealand. Carl’s Jr is famous for offering premium class quality burgers. The segments are identified because the Group manages the business individually and elaborates each of the business separately to decision makers of the group. The segments operate in three separate markets and have different sales strategy for the products and new processes for production. They target for individual profit margin. The segments follow the same accounting principles as followed by the Group. The assets of the segment comprise intangible assets, property, inventories and plant and equipment. The unallocated assets include the other cash receivables, deferred tax, cash and cash equivalents and derivative financial instruments, which are managed on central basis. This forms the part of reconciliation to the total assets in the financial statement position. The capital expenditure of the segment includes the total cost that is incurred in the period by acquiring plant and equipment, property and intangible assets (other than goodwill). The Group did not disclose the liabilities of the segment as the operating officers examine the performance and then allocate the resources that are purely based on the aggregated Group liabilities (Restaurant Brands New Zealand, 2012). (e) Value of the segments a) Operating Revenue (in 2012) Segments $ NZ ‘000 KFC 236,284 Pizza Hut 45,477 Starbucks Coffee 26,452 b) Gross Profit Segments $ NZ ‘000 Gross Profit 56,221 c) Net Profit after Tax Segments $ NZ ‘000 Net Profit After Tax 16,927 d) Assets Segments $ NZ ‘000 Total Assets 104,870 e) Liabilities Segments $ NZ ‘000 Total Liability 45,117 Part B: Essay “Segmental analysis is fundamental to investors’ understanding of an entity’s performance and prospects” (International Accounting Standards Board, 2013). New Zealand Equivalent to IFRS 8 has defined Operating Segments as an entity: (a) That is engaged in business activities which can incur expenses and can earn revenues which include the expenses and revenues that are related to the transactions with other parts of the same entities. (b) Whose resulting profits are reviewed at a regular basis by the entity’s decision makers so as to make decisions about the allocation of the resources to the segments. They are also responsible for the assessment of the performance of the entity. (c) Which has its own “discrete financial information” (International Accounting Standards Board, 2013). NZ IFRS 8 is based on IFRS, which is published by the International Accounting Standards Board in 2006. IFRS 8 is based on the consideration of IASB of FASB Statement No.131 Disclosures, which includes the concepts of segments of a company and the related information and is issued in 1997. NZ IFRS 8 identify how an entity will be reporting their information about the operating segments in the annual reports. It also requires following the modifications to NZ IAS 34 Interim Financial Reporting to prepare its operating segments’ financial reports. It also requires information related to the disclosures of the services and product, major customers and the geographical areas (Crawford, Extance, Hellier & Power, 2012, 237). It requires a unit to report the descriptive and financial information about the segments. The segments can be operating segments that will meet the specified requirement of the operating segments. The financial information regarding the components of a unit is examined at regular basis by the decision makers of the unit and they also assess the performance of the unit. Financial information are needed to be reported as it is used for internal reporting regarding the performance of the unit’s operating segment and thereby deciding the allocation of resources to the operating segments. NZ IFRS 8 needs an entity for reporting the measure of the operating loss or profit of the operating segment. It also measures the liabilities of the segment and particular the expenses and the income and this information are provided to the decision makers regularly. It requires the settlement of the revenues, liabilities, assets and the total profit and loss of the segments that are to be disclosed in the financial statement of the segments. NZ IFRS 8 needs the entity which can report the information about revenues that are being derived from the products or services, information regarding the countries, where the entity earns its revenues and thus holds assets and also the major sets of customers. This information is also used by the management of the entity for decision making purposes. The NZ IFRS 8 not only prepared for internal use but also for the use of the external investors and also the customers, who are interested in the entity. NZ IFRS 8 is applied by the entities for preparation of the financial statements for the period beginning on or before 1st January 2009. The main changes and the difference between NZ IAS to NZ IFRS 8 are the following: i) Identification of the segments: The NZ IFRS 8 requirements are comprised of the information about the parts of the entities that the management uses for decision making regarding the operation of the entity. NZ IFRS needs the identification of the operating segments on the basis of which internal reports are made and are regularly examined by the chief decision maker of the entity. The decision is basically about the allocation of the resources and the assessment of the performance of the entity. NZ IAS 14 identified two segments: one is based on the products and the services and the other is based on the geographical areas. It also identifies set of primary segments and secondary segments. A section of an entity, which sells exclusively or primarily to other operating segments of entity is elaborated in the NZ IFRS’s definition of operating segment. NZ IAS 14 has limited the reportable segments for who earn a vast part of their revenue from the sales to the external customers and thus does not require vertical integration of the segments. ii) Measurement of segment information: NZ IFRS needs each of the segments to report their financial position so that the decision maker can take decision for allocation of resources to the segments and also assess the performance of each segments. Whereas, NZ IAS 14 needed information regarding the segments, which are to be prepared in compliance with accounting policies that are adopted for the preparation of the consolidated financial statements of the group entity. NZ IAS 14 defined the revenue, expense, result of the segment as well as the assets and the liabilities of the segment. But NZ IFRS does not describe the terms but it gave an explanation that how the profit or loss, asset and liability of the segment are measured for each of the segments (Ernst & Young, 2013). iii) Disclosure: NZ IAS 14 needs the entity to reveal few specified information about the items, which are its primary segments. NZ IFRS needs an entity to unveil the specified amounts of each of the reportable segments only if specified amounts are incorporated in the measure of profit or loss of the segment and are re-examined by the decision maker regularly. NZ IFRS requires disclosing of interest income and the expense so as to help the decision maker to take any decision about the financial position of the entity. NZ IAS 14 does not need to disclose the interest income and expense of the entity (PriceWaterCoopers, 2013). iv) Scope: “NZ IFRS 8 is based on IFRS 8” (International Accounting Standards Board, 2013). IFRS 8 identifies the interim and annual financial statements of an entity. It pertains to the individual financial statements of the entity and also to consolidated financial statements of the group with the parent entity: i) Whose equity and debt instruments are being traded in the market publicly or ii) That either files or on the process of filing its financial statements with securities commission or the regulatory organization for issuing any instruments in a market publicly From the Annual Report of 2007 of the company Auckland International Airport Limited, it can be seen that the company has only one geographic segment. The financial report is prepared in accordance with the NZ IAS 14 (Ernst & Young, 2013). Figure 1: Auckland International Airport Limited, Annual Report, 2007 But in the Annual Report of 2012 it can be seen that the segments are divided into the following: i) Airfield income ii) Terminal Service charges iii) Passenger service charge iv) Rental income v) Retail Income vi) Car Park Income vii) Other income The financial report is prepared in accordance with NZ IFRS 8. Thus, it provides with segmented information to the customers and the investors and thus helps them to take decisions (BDO International, 2013). References Air New Zealand Limited, (2012). Annual report. Retrieved from http://www.airnewzealand.com/assets/PDFs/2012-annual-financial-report.pdf Auckland International Airport Limited. (2012). Annual report. Retrieved from http://www.aucklandairport.co.nz/~/media/Files/Annual%20Report/Auckland_Airport_Annual_Report_2012.pdf BDO International. (2013). IFRS operating segment. Retrieved from http://www.ifrs.org/IFRSs/Documents/IFRS8en.pdf Briscoe Group Limited. (2013). Annual report. Retrieved from http://www.briscoegroup.co.nz/documents/Annual_Report_27_Jan_2013.pdf Crawford, L., Extance, H., Hellier, C. & Power, D. (2012). Operating segments: The usefulness of IFRS 8. Edinburgh: Institute of Chartered Accountants of Scotland. Ernst & Young. (2013). IFRS operating segments. Retrieved from http://www.ey.com/Publication/vwLUAssets/IFRS_8_Operating_segments_Implementation_guidance/$FILE/IFRS_8_Operating_Segments_IG.pdf International Accounting Standards Board. (2013). Post-implementation review: IFRS 8 operating segments. Retrieved from http://www.ifrs.org/Current-Projects/IASB-Projects/PIR/IFRS-8/Documents/PIR-IFRS-8-Operatihg-Segments-July-2013.pdf Michael Hills International Limited. (2012). Annual report. Retrieved from http://media.corporate-ir.net/media_files/IROL/17/170266/Reports/2012%20Annual%20Report%20-%20Web%20version.pdf PriceWaterCoopers. (2013). A practical guide to segment reporting. Retrieved from http://www.pwc.com/en_GX/gx/ifrs-reporting/pdf/segment-reporting.pdf Restaurant Brands New Zealand. (2012). Annual report. Retrieved from http://www.restaurantbrands.co.nz/reports/annual2012.pdf Read More