auditing case study--Virgin Australia

Topics: Airline, Qantas, International Civil Aviation Organization Pages: 12 (3794 words) Published: October 4, 2014
Executive Summary
This report analyses Virgin Australia (ASX code VAH) and identifies its potential business and audit risks that will need to be addressed in the 2014 audit. It is presented to the Virgin Australia Audit Committee as part of the 2014 Audit planning process. The first part of this report provides a broad introduction into the business of Virgin Australian by examining its principal sources of revenue, its nature of operating, its competitors, the market share and the regulations affecting its operations. From this, it can be seen that Virgin Australia operates in a very competitive environment and generates revenue by the core business of passenger and cargo transport. The second part of this report analyses the external business environment which the civil aviation industry operates in and its specific impacts on VAH by using a PESTEL model consisting political, economic, socio-cultural, technological, environmental and legal which are macro environment factors affect strategic business planning. Three major audit risks are identified and assessed in the third part of the report. These relate to revenue and income accounts, the PPE and intangible assets. The accuracy of revenue and income may be questionable due to of unearned passenger revenue obligations and future obligations in relation to credit voucher redemption rates. The PPE account is possibly overstated as it is hard to predict the next scheduled heavy maintenance especially for the new aircraft model and value of the leasehold properties are easily to be overstated. Finally the intangible asset account can be overstated, which is indicated by the the difficulty of the valuation of Sabre Sonic software and fair value of goodwill. 1. Information of Virgin Australia

1.1 Sources of revenue
Virgin Australia Airlines is part of the Virgin Group which was established in 1970 by Sir Richard Branson. It is Australia's second-largest airline bases in Bowen Hills, Brisbane. Virgin Australia’s principal activity is the operation of domestic and international airlines. It generates the majority of its income from the Domestic Airlines in Australia industry. In 2013 the company recognised revenue and other income of $4,020.4 million for the financial year ended 30 June 2013.Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognised for the major business activities as follows:

Airline passenger revenue- Airline passenger revenue comprises revenue from ticket sales. Other revenue- Other revenue comprises revenue earned from the provision of other airline related services (including freight revenue, on-board sales and other product revenue), unutilised carriage and redemption of credit vouchers. The Group defers revenue relating to the issuance of points to members in its loyalty program Velocity frequent flyer program. Cash received from third parties above the fair value of the redemption is recognised immediately in profit or loss. Government Grants- Government assistance received and confirmed no amounts will be refundable Aircraft Lease Income- Aircraft lease income relates to income generated from the leasing of owned aircraft. Net Foreign Exchange Gains - A net ineffective cash flow hedge and non-designated derivatives and foreign exchange gain of $49.1 million was recorded for the financial year2013.

1.2 Nature of VAH Production Operations
Australia was established in August 2000 with two aircraft operating on a single route, offering seven return flights a day between Brisbane and Sydney initially. It catapulted to the position of Australia's second airline after the collapse of Ansett Australia in September 2001.1 The airline has grown to directly serve 29 cities in Australia from hubs in Brisbane, Melbourne and Sydney.2The company has more than 80 aircraft in operation, operates over 162,000 flights a year and offers the following additional services:3 Travel Extras -Holiday and...
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