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INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF AIRASIA BERHAD
(INCORPORATED IN MALAYSIA)
Key Audit Matters (cont’d.)
Recognition of revenue from passenger seat sales and sales in
advance (continued)
Our response
The flight reservation system is managed by a third party vendor.
The above factors gave rise to higher risk of material misstatement
in the timing and amount of revenue recognised from passenger
seats sales. Accordingly, we identified revenue recognition to be
an area of focus.
In addition, we also performed, amongst others, the following
procedures:
• Performed data analytics to reconcile the revenue recognised
in respect of passenger seats sales and the amount of sales in
advance to the payments received from passengers;
• Performed procedures to corroborate the occurence of revenue
by tracing samples of revenue recognised to settlement reports
from financial institutions;
• Tested the reconciliation of data between the flight reservation
systemand the general ledger to corroborate the completeness
of revenue;
• Tested the foreign currency translation for samples of flight
bookings made in foreign currencies; and
• Performed cut-off procedures to determine if revenue from
passenger seats sales are recorded in the correct accounting
period.
Aircraft maintenance provisions
Our response
Refer to Note 3.3 and Note 28 to the financial statements.
As at 31 December 2017, aircraft maintenance provisions of the
Group and the Company amounted to RM738 million and RM387
million respectively.
The Group and the Company operate aircraft which are either
owned or held under operating lease arrangement. In respect
of the aircraft held under operating lease arrangements, the
Group and the Company are contractually obligated to maintain
the aircraft during the lease period and to redeliver the aircraft
to the lessors at the end of the lease term, in certain pre-agreed
conditions. Accordingly, the Group and the Company estimate the
aircraft maintenance costs required to fulfil these obligations at
the end of the lease period and recognise a provision for these
costs at each reporting date.
A provision by its nature is more uncertain than most other items in
the statement of financial position. The estimates of the outcome and
financialeffects aredeterminedby the judgement ofthemanagement,
supplemented by experience from similar transactions. Due to the
magnitude of the provision and the significant judgment involved in
estimating the cost to be incurred and timing of cash outflows, we
consider this to be an area of audit focus.
In addressing this area of audit focus, our audit procedures
included, amongst others:
• Reviewed the lease agreements to determine the Group’s and
the Company’s contractual obligations in respect of aircraft
maintenance;
• Evaluated the significant assumptions on cost to be incurred
applied by the Group and the Company in estimating the aircraft
maintenance provision costs by comparing these assumptions
to past industry experience, supplemented by expectations of
the future economic conditions;
• Tested the accuracy of the computation of the aircraft
maintenance provisions as at reporting date.
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AirAsia Berhad
REPORTS AND FINANCIAL STATEMENTS
230