Regulation and Australian Accounting Standards

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  1. Montreal Convention 1999

The Montreal Convention of 1999 or MC99 (IATA n.d.) was agreed upon by 110 countries, including Australia, designed to unify the various international treaty regimes. A unified set of rules provides better protection for passengers while on the part of carriers there is clarity on airline liability. The major change brought about by MC99 is a 2 level liability framework (Hudson A and Wiese R, 2009) in respect to passenger injury or death. The first level is a definitive liability and cannot be reduced unless there is also negligence on the part of the passenger. The second level is unlimited liability however carriers can contest by proving they have not been negligent.

  1. Civil Aviation Safety Regulations 1998

The Civil Aviation Safety Regulations 1998 (“CASRs”) are enforced by the Civil Aviation Safety Authority of the Australian government (CASA n.d.). The CASRs are meant to enhance and promote aviation safety and various aspects including, but not limited to, airworthiness standards and requirements for aircrafts, flight crew licensing, pilot training, and enforcement procedures.

  1. Aviation Transport Security Act 2004

The Department of Infrastructure and Regional Development ( n.d.) of the Australian government administers the Regulated Air Cargo Agents (“RACAs”) scheme. RACAs was brought about by the Aviation Transport Security Act 2004, which requires a RACA to, among others, develop and implement a transport security program based on an operations security risk assessment, providing employees with security training, and security checking of all cargo.

  1. Cape Town Convention 2001

The Cape Town Convention 2001 aims to facilitate the financing of aircraft including provide carriers access to cheaper finance. This is to be achieved in part by providing lenders with a uniform or internationally recognised set of creditor rights in the event of a default or carrier insolvency as well as providing lenders priority of their claims against other parties. This is expected to be in force in Australia soon as the relevant legislative rules have now been tabled in the Australian Parliament. ( n.d.)


Hudson A and Wiese R, 2009, ‘Australia: Montreal Convention’, Hunt & Hunt. Available from:

<>. [20 January 2009]

Civil Aviation Safety Authority, Civil Aviation Safety Regulations 1998. Available from:


Regulated Air Cargo Agent Scheme, Aviation Transport Security Act 2004. Available from:


Cape Town Convention, The 2001 Convention on International Interests in Mobile Equipmentand the associated Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment. Available from:



Per the 2014 Annual Report, Qantas (the “Company”) made changes to its organizational structure which consists of the operating segments Qantas International, Domestic, Qantas Freight, Qantas Loyalty and Jetstar Group. The impairment identified in Qantas International was attributed to old purchases of wide body aircraft at a time where the Australian dollar (“AU$”) was significantly weaker against the US dollar (“USD”) compared to recent years. The Company had assumed an exchange rate of AU$0.92 to USD1.00 in its analysis.

As highlighted by the Company, one factor to consider for fiscal year 2015 audit with respect to the write-down is the subsequent rise of the USD against all major currencies including the AU$. Historical exchange rate data reveals that since fiscal year-end June 2014 through to the end of March 2015, the AU$: USD rate declined 19% from 0.94: 1.00, to 0.76: 1.00. The last time it reached the 0.76 mark was in May 2009 (Oanda n.d.) during the global financial crisis. Further, a recent CNBC article (Tahara-Stubbs 2015) indicates more downward pressure ahead for the AU$ with the expected interest rate hike by the US Federal Reserve coupled with continued pressure on the Reserve Bank of Australia to ease interest rates to support the Australian economy. The Company’s Annual Report indicates the impairment calculation was based on the “value in use”, therefore in accordance with accounting standards (Australian Accounting Standards 2014) management would likely need to evaluate whether the significant decline in the AU$ as well as the low interest rate environment would lead to a material increase in the estimated AU$ future cash flows and/or a downward adjustment to the discount rate, and whether such outcome would require any reversal of the write-down.

Another assumption in the Company’s analysis is a fuel oil price of USD128/barrel. However, according to International Air Transport Association (IATA) data (IATA 2015), jet fuel prices have gone down to just around USD70/barrel, a level not seen since 2009. The collapse in oil has been widely attributed to the rapid increase in energy production in North America, which has transformed the United States from the world’s largest oil importer to a potential major oil exporter. A report by ExxonMobil, “The Outlook for Energy: A View to 2040” estimates that “By 2040, U.S. production of crude and other liquids is projected to rise to over 15 MBD — about a 70 percent increase from 2010. North America as a whole will see a similar growth rate through 2040, reaching 26 MBD — more than twice the current production of Saudi Arabia.” This suggests lower prices may be the new normal, and similar to the AU$ currency scenario, would warrant management’s reevaluation of its fuel price assumptions.

In accordance with auditing standards (Australian Auditing Standards 2011), the audit plan needs to take these two factors into account and place emphasis on management’s evaluation including its underlying assumptions and supporting calculations. The audit team also needs to obtain understanding of the methods used in determining segment information including checking for inconsistencies, if any, with the prior period, and evaluating the adequacy of disclosures in the Company’s financial reporting with respect to inconsistencies.


Qantas Airways Limited Annual Report, Qantas Annual Report Online 2014. Available from:

<>. [3 September 2014], Historical Exchange Rates. Available from:

<>., Index Charts. Available from:


Tahara-Stubbs, M 2015, ‘These G-10 currencies are in for a bumpy ride’, Available from:

<>. [1 April 2015]

Australian Accounting Standards, Impairment of Assets, AASB 136. Available from:

Australian Accounting Standards Board. [1 July 2014], Fuel Price Monitor. Available from:

<>. [20 March 2015]

ExxonMobil Corporation, Outlook for Energy: A View to 2040. Available from:


Australian Auditing Standards, Audit Evidence – Specific Considerations for Inventory and Segment Information, ASA 501. Available from:

Auditing and Assurance Standards Board, Australia. [27 June 2011]